Home loan rates likely TO SOFTEN
Property prices in real terms--after adjusting for inflation--are coming down, RBI's governor Raghuram Rajan said.
“The value of real estate should increase in a growing economy , but the housing data suggests that with inflation rate at 7-8%, prices are coming down in real terms and becoming more affordable as wages are going up,“ Rajan said.
Despite this favourable observation by the RBI governor, the central bank continued with the existing high benchmark interest rates signalling banks to continue with tight liquidity policy to contain retail inflation to around 6%.
But, the good news is that many bankers are of the opinion that despite RBI's decision not to cut rates, interest rates on home loans are likely to soften in the near future, as the liquidity in the banking system has improved.
The real estate sector is demanding rate cuts, so that buyers' affordability in purchasing a house improves. Any rate cut is likely to help in reviving the real estate sector. This is also likely to help other sectors of the economy to improve their performance.
Real estate association CREDAI's president (Elect), Getamber Anand, expressed his disappointment at the RBI's decision to not cut interest rate.He said that a cut in interest rate would have helped revive the economy.
In fact, in the last seven years, RBI continued to believe that real estate prices were high and it was a bubble in the making. Because of this, RBI discouraged banks from lending to the real estate sector. “With the economic indicators being stable and inflation coming down, a rate cut would have attracted more buyers to the sector during the festival season. We believe that it is only a matter of time before home loan rates come down giving further boost to consumer sentiments and real estate demand. However, in the near future, the RBI governor hinted at lowering rates if the macro conditions permit, which would boost the market sentiments,“ Vinay Jain, the CMD of AVJ Group, said.
Rajesh Goyal, the MD of RG Group, says: “RBI has decided to maintain its status quo on key policies, though lowering the interest rates would have acted as a catalyst to boost housing demand. As anticipated, with the change at the political front and onset of festive season, positive sentiments are seen in the market and lowering the rate of interest would have encouraged homebuyers further. The decision to have stable policies will be beneficial in the long run but keeping in mind the current moderate demand in the market, a small cut in the rate of interest would have made a big difference.“
Ajay Kumar, the CMD of Ace Group, says: “The decision of RBI to keep the interest rates on home loans unchanged has dampened our hopes, as the interest rates in the last quarter were also not touched.
“But this time the expectations from RBI was that keeping in mind the growing positive sentiment in the real estate sector, the reduced rates on home loans would have given impetus to the existing upward graph of the positive sentiment being shown by home seekers ever since the new government assumed office at the Centre.“
Rajan, however, is not overtly concerned about the high property prices. He said that leaving aside Delhi's Aurangzeb Road and Mumbai's Malabar Hill, property prices are not alarmingly high. Besides, buyers' cash down payment of 20% while purchasing a residential unit provides enough cushion to the bank's loan, he said.
Rajan said the appreciation in property rates is in tandem with the inflation in a majority of cases, and added that the RBI is not concerned about the lenders' perspective because there is an equity component which homebuyers get in while getting a loan.
Malabar Hill and Aurangzeb Road bungalows are home to billionaires like ArcelorMittal's L N Mittal, DLF's K P Singh, and Max India's Analjit Singh, among others. Thus, as the prices in this area are between Rs 300 crore and Rs 500 crore, transactions are very rare.
Banks hardly have any exposure in the purchase of these bungalows, a banker said. Similarly, South Mumbai's Malabar Hill is home to several business tycoons and Bollywood superstars.
Billionaire investor Rakesh Jhunjhunwala bought sea-facing apartments in Malabar Hill last year; the rates in this area are around Rs 1.25 lakh per sq feet.