After RBI's hike in repo rates, builders are urging banks to protect buyers by not inflating interest rates; experts and activists feel that the request is unfair, and that builders should decrease their prices instead
After RBI's hike in repo rates, builders are urging banks to protect buyers by not inflating interest rates; experts and activists feel that the request is unfair, and that builders should decrease their prices instead
The RBI-sanctioned hike in repo rates, announced last Tuesday, could spell doom for the real estate industry, discouraging buyers from taking housing loans against steep interest rates.
The hike in repo rates may discourage buyers from
taking housing loans against steep interest rates
In a bid to save the already ailing industry from incurring further setbacks, builders have been pressing home loan institutions to absorb the impact of the repo rate hike, instead of passing it on to buyers.
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The banks, in turn, are reluctant to comply, retaliating that the builders' should themselves contribute to reducing the buyer's burden by reducing their rates, instead of passing on all the responsibility to banks.
MiD DAY spoke to several housing activists and economists, all of whom were in agreement that it was not just the banks, but also the builders who should cut down on their costs, distributing the newly imposed financial burden equitably between buyers, banks and builders.
RBI announced a raise in the repo rates by 50 basis points last Tuesday. This means that the EMI for housing loans will shoot up for a loan of Rs 10 lakh, the EMIs could rise from Rs 998 to Rs 1,335.
Anticipating this, members of the Maharashtra Chamber of Housing Industry (MCHI), the apex body of builders in the city, have appealed to the financial institutions to absorb the impact of the rise, by refraining from hiking the interest rates.
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In the letter issued to the financial institutions of the city, the MCHI has attributed this request to its fear that the RBI move could adversely affect the industry, discoursing aspiring homeowners.
"Bankers have systematically raised home loan interest rates in tandem with RBI's announced hikes in repo rates. We strongly feel that they should consider the buyers' interest.
On behalf of the aspiring homeowners, we have requested banks not to raise their interest rates.
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The common man is already hard pressed for money, owing to the continually rising prices of essential commodities, under the impact of the fuel price hike," said Paras Gundecha, president of MCHI.
Gundecha added, "This is the second time in the short span of 45 days that the repo rate has been hiked with the approval of the RBI.u00a0 This is sure to have a deleterious effect on the real estate industry, which has already been reeling under the impact of increasing input cost, and fall in demand."
Expert speak
Chief economist with HDFC bank, Abheek Barua, however, disagreed strongly to this rationale, saying, "Builders need to be more rational when suggesting that banks make such considerations.
Asking the banks to absorb the entire impact of the hike sounds somewhat unfair. The concerned builders should themselves help decrease the common man's burden by decreasing real estate rates."
Activist speak
Housing activist Sridhar Sharma, founder of Revathi Memorial, an NGO working in the real estate sector, agreed with Barua, saying, "When the municipal commissioner decided to charge premiums for free FSI, builders didn't hesitate to impose it upon buyers.
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On no grounds can they ask the banks to slash interest rates now, when they never leave an opportunity to extract money from the buyers themselves. If they are earnestly concerned about the buyers, then why don't they decrease the real estate rates? Even a nominal cut would help aspiring home owners," he said.
What is repo rate?
Repo rate is the rate at which banks borrow money from the RBI. A reduction in the repo rate would mean that the banks could obtain money from the RBI at lower rates. And when the repo rate increases, borrowing money from the RBI becomes more expensive.u00a0
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