Home buyers and real estate developers hoping for a sharp fall in lending rates have been left disappointed by the Reserve Bank of India (RBI)'s decision to keep policy rates unchanged on Wednesday.
Realty sales have dropped up to 30 per cent after the government decided to withdraw high value notes three months ago that led to cash crunch in the banking system.
"A rate cut would have renewed buyers' interest in property purchase," says Naveen Shukla, who is waiting for the lending rates to fall to 7 per cent from a current 8.6 to 9.6 per cent. Now people like Shukla will have to wait more to buy their dream home.
Real estate experts feel that rate cut would have kickstarted demand on the residential side and boosted the economy. The consumer confidence has been at a low since demonetisation.
“The decision to keep the repo rate unchanged comes as a surprise. While the recent demonetisation drive has brought in the necessary liquidity into the banks, lowering the repo-rate would have helped ease borrowing costs. This would have provided an added thrust to the government's initiatives for affordable housing and fuelled demand,” realty expert and Commerce Real Estate Services (CBRE) India chairman Anshuman Magazine said.
Industry was expecting a 0.25 percentage cut in the repo rate in the wake of demonetisation, leaving sufficient liquidity in the banking system. This is for the second time in a row that the central bank has decided to maintain a status quo on the interest rates. The last time RBI reduced the repo rate was on October 4 last year, bringing it down by 0.25 per cent.
However, the industry experts still see room for easing of lending rates. "RBI has kept the repo rate unchanged but for those looking to buy a home, a better time could be on the anvil. We foresee that the RBI is inclined to cut repo rate in its April 2017 meeting. With banks flush with funds it appears the home loan rates are set to fall further," said Prashant Tiwari, chairman of Prateek Group.
On Wednesday, RBI Governor Urjit Patel also nudged banks to make loans cheaper, saying that there was room for more lending rate cuts. "The RBI cut its key rates by 1.75 per cent average lending rates have come down only by 85-90 basis points," he said.
Meanwhile, the buyers may still see lower EMIs on their loans because of the intensifying competition among banks."The home loan rates are already at a low and prices of real estate are also lucrative for buyers to take quick decision to buy a home," said Deepak Kapoor of the Confederation of Real Estate Developers' Association of India (CREDAI).