Real estate news on RBI rate cut expected to revitalize home-buyers

Property loans/ Home loans, Kolkata, Home Loan
Posted on Nov 04, 2015
KOLKATA: With the RBI's rate cut expected to reduce the interest rate of housing loan by home-buyers and borrowing by developers, realtors said the move would act as a booster shot to the beleaguered industry.

Sushil Mohta, chairman of Bengal chapter of Confederation of Real Estate Developers' Association of India (Credai), the umbrella organization of major builders in the state, felt that if interest rate on home loan dropped under 10%, it would have a major effect on the psychology of prospective buyers.

The rate cut will also be music to the ears of existing customers as most of them have taken loans on floating rates. Once the respective banks reduce the interest on home loans, the EMI payout will be less, leading to savings.

"It is all about positive sentiment. Consumers will invest only when they feel good. Credai has for some time been pushing for rate cut to send a positive signal and give customers the comfort. I believe the RBI's action will encourage fence-sitters to take a decision," said Mohta.

With the cost of borrowing also expected to go down from 12-12.5% to 11.5-12%, many builders could pass the benefit to customers in a bid to kickstart sales that have reduced to a trickle in recent months.

"The average cost of a unit in Kolkata Metropolitan Area is Rs 50 lakh. Around 70% or Rs 35 lakh is the loan component. If the developer reduces the price by 0.5-1% and the bank reduces the interest rate by 0.5%, it will reflect in the reduced EMI," a realtor pointed out.

These twin factors apart, RBI has also reduced the risk weightage on housing loan by 50% as the home loan default is less than 0.5%. This, too, will benefit prospective home owners.

While former Credai Bengal president Pradip Sureka felt the market sentiment would improve in the wake of the RBI rate cut, he cautioned that it would take time for it to gain tracktion. "Slowdown doesn't happen overnight. Neither does growth. This is a good antidote," he said.

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