Home truths about RBI interest rate cut

18 April,2012 07:56 AM IST |   |  Varun Singh

While home loans may become cheaper in the coming months by about 0.50 per cent, experts say property prices are unlikely to come down, and, in fact, may rise further


The key interest rates' cut - by an unexpectedly high 50 basis points - announced by Reserve Bank of India (RBI) yesterday is likely to bring some relief in these times of fiscal uncertainty, but perhaps not to the common man. Top banks are expected to reduce home loan rates, but not immediately. That's because bankers are looking to clip both deposit and lending rates in order to maintain their net interest margin (NIM).


Boon or bane? Despite RBI cutting repo rate and reverse repo rate by 0.50 per cent, real estate rates in the city may rise. Representation pic

On the other hand, builders and industry experts lauded the central bank's move of reducing repo rate, believing it will bring buyers back to the property market. But they were also unequivocal that real estate rates are unlikely to fall and may actually escalate further. MiD DAY brings you across-the-board opinions about what developers, analysts and the common man feel is going to change in the days to come.

Om Ahuja, CEO, Residential Services, Jones Lang LaSalle India, said, "We do expect a marginal increase in home loan borrowings. That said the series of hikes in the past have also affected the price that builders put on their properties, since their own cost of borrowing has increased. It is unlikely that property prices will fall, and, in fact, it is very likely that there will be an upward bias."

While Paras Gunecha, President, MCHI-CREDAI, said, "Banks should cut rates of interest so that home loans become affordable. This will obviously encourage buyers to go for their dream homes. Hardly any policy proposals have been passed by the government. Supply doesn't meet demand, hence real estate prices won't come down."

Lalit Kumar Jain, Chairman and MD, Kumar Urban Development & President, CREDAI (national), said, "The RBI announcement slashing repo rate is a step in the right direction. Banks should act immediately and cut rates of interest to facilitate both the homebuyer and developer community.

On the other hand, Ashwin Jain, a prospective homebuyer, said, "A 0.50 per cent cut doesn't make much of an impact. Housing prices are already too high and unaffordable." "This would benefit only the rich who are going to take loans of crores. This means nothing to people from the middle and upper middle class," said Vinod J, associated with the financial sector. u00a0

Point of interest
Repo rate is the rate at which banks borrow money from RBI. This is a reference rate used by banks to lend to their customers like companies and individuals.

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