Real estate developers have hailed the Reserve Bank of India’s move to reduce Repo rate by 50 basis points. However, they are also appealing banks to pass on the benefit of the rate reduction to consumers by easing the home loan rates.
Prior to Tuesday’s 50-bps cut, the central bank had earlier reduced Repo rate by 75 basis since January. However, the net loan rate reduction by banks so far has not been more than 25 -30 points.
“This is a helpful move, but was long overdue. We now appeal banks to pass on the rate reduction to consumers. They can now pass an entire 1% rate reduction for home loans,” said Getamber Anand, president, CREDAI. “If that happens, this year’s Diwali will see revival in home sales momentum.”
Apart from rate cut, the central bank has also announced that it will lower risk weightage for low cost home loans.
With a view to improving “affordability of low cost housing” for economically weaker sections and low income groups and giving a fillip to “Housing for All”, the central bank has also proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans, RBI said in its policy statement. The central bank will separately issue detailed guidelines on this.
“Risk weightage for home loans need to be halved to 25% from current 50%. And not only for economically weaker section but across categories, because the NPA (non-performing assets) in home loans segment is less than 1% and hence it’s justifiable to lower the risk weightage,” said Niranjan Hiranandani, MD, Hiranandani Constructions.
For some time now, developers have been appealing the central government to go in for dynamic policy reforms to give the much needed boost to realty sector. Housing sales has been sluggish for more than three years now owing to unaffordable property prices and high interest rates.
A significant rate cut is expected to improve affordability for consumers and likely to encourage the fence sitter to take a decision to give a much needed fillip to the property sector.