Benefits leveraged to Real-estate sector from extension of loan moratorium and cuts in interest rates by RBI
The Reserve Bank of India announcements are a continued effort to increase private consumption and provide liquidity access to all sectors hit by the COVID-19 pandemic. These actions will help reviving demand crippled by the lockdown. The Reserve Bank of India has announced that the standard lending rate will be lowered by 30%. Along with this, term loan moratorium will also be extended by 3 months. Currently, the RBI is making constant changes in the policies to uplift the number of sectors affected by the COVID-19 crisis and help them gain liquidity access. The slashing of the interest rate and the extension of the loan moratorium have been received well by the real estate sector.
At a time when the real estate sector is unsure about its future, these decisions of the RBI are welcomed by the developers. The pandemic had struck the realty sector right when it was starting to revive from a major liquidity crisis. The lockdown has been a major blow to the industry. The slashing of the repo rates would ease up the liquidity in the realty sector and also allow the banks to lend more money.
This RBI’s move today is expected to further help banks to lower home loan interest rates, which may get several more fence-sitters onto the market. Moreover, the repo rate cut may compel banks to reduce the interest rates for FDs even further this could result in even more people leaning towards housing as a better investment option.
These changes would also make it easier for the homebuyers to purchase properties, thus acting as an incentive. For example, the reduction in the repo rate would in turn increase the purchasing power of the buyers. The accumulated interest during the moratorium period would be converted into a term loan, which means that the buyers won’t have to pay up the accumulated interest immediately. The buyers’ sentiment would undergo an uplift due to the cuts in the repo rate, thus increasing sales. It is expected that this would especially benefit the affordable housing sector. This is because most people buying affordable homes opt for EMIs and seek the most economic options. Lower repo rates would result in low EMIs, giving these buyers a major opportunity.
While the real estate sector was happy with these moves, some of the leading developers expressed concerns regarding these being only temporary relief.
Satish Magar, President of Credai National Said, “We expected more stringent measures from the RBI booster to revive the economy. The move of moratorium extension is a short-term piecemeal solution to a long-term problem. The interest rate should be reduced with firm liquidity measures as this is the need of the hour backed by one -time restructuring of loans to help the real estate sector from crumpling. RBI has tried to ease the pressure on borrowers and has extended group exposure limit for lenders to corporates from 25 percent to 30 percent but this is not enough to solve the ongoing liquidity crisis. The government now needs to ensure that banks are forthcoming and are passing on the benefits to us currently, there is a dearth of income in the sector owing to the COVID crisis.