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Experts 'Hail' Unchanged Rates; Hope for Housing Market Revival Continues

Housing experts said the housing markets should continue to respond well to lower home loan rates, stamp duty reduction, and other rebates.

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Experts tracking the real estate market are extremely happy. Why? Because the Reserve Bank of India (RBI) has maintained the status quo for the fifth time and decided to keep the Repo Rate unchanged at 4 percent. "It is a 'welcome move' which has been undertaken with the aim of ensuring economic revival while ensuring that inflation remains within the target going forward," said Anshuman Magazine, Chairman and CEO, CBRE India, South- East Asia, Middle East, and Africa. CBRE is one of the world’s leading real estate consulting firms.

What does it mean for the homebuyers? The home loan interest rates have already gone down substantially over the last year and are presently at an all-time low. Homebuyers will continue to take advantage of the lowest ever home loan interest rates and with the emerging need, the demand for housing is going to sustain and many fence-sitters will take the plunge and make the purchase.

In addition to maintaining its accommodative policy stance, RBI has also announced additional measures such as special liquidity facilities for all India financial institutions including Rs 10,000 crore for the National Housing Bank (NHB), timeline extensions of six months for banks on-lending to NBFC’s, the constitution of a committee to comprehensively review the working of asset reconstruction companies (ARCs), an extension of TLTRO On Tap scheme deadline by six months, amongst others. "These measures are likely to assist the revival of the real estate sector while fast-tracking economic recovery,” Magazine added.

Anuj Puri, Chairman, ANAROCK Property Consultants said while repo rates would remain the same and home loan rates may remain stable, the incentive period for lower rates (starting from 6.7 percent) expired on March 31. "The State Bank of India has already reverted to its normal rates and other banks will also follow suit. This may have some impact on the housing demand, especially in Maharashtra where the stamp duty cuts coupled with the lowest-ever home loan rates had significantly boosted housing demand," said Puri. 

As the apex bank has kept the rates unchanged, housing developers expect housing demand to continue its upward trajectory in 2021.

From a real estate point of view, an additional Rs 10,000 crore for NHB for fresh lending will create a seamless environment to sustain the business operation. "As a major part of credit borrowing happens from NBFCs in the real estate sector, the extension provided till 30th September will boost liquidity even further,” said Rohit Poddar, Managing Director, Poddar Housing and Development.

"With the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels," said Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory.

Ram Raheja - Director, S Raheja Realty also noted that the housing markets have responded well in the past to lower home loan rates, stamp duty reduction and other rebates. "With inflation set to be high and economic recovery slow due to surge of COVID, residential real estate will continue to attract investment as it is a safe-haven asset,” said Raheja.

Uday Shankar, President, FICCI said, “The status quo with regard to the repo rate was anticipated given the inflation concern. However, the bias indicated by the Central Bank towards maintaining an accommodative stance is reassuring. The fresh surge in COVID infections is worrying and the imposition of local lockdowns can undermine the recovery prospects over the near term. At this juncture, it is critical to ensure that the gains made over the past few months are not undone.”

The extension of schemes like on-tap TLTRO for specific sectors and bank lending to NBFCs for on-lending to agriculture, MSME, housing sectors as priority sector lending; the additional refinancing facility provided for SIDBI, NHB, & NABARD; and the relaxation in the period of parking of External Commercial Borrowing (ECB) proceeds in term deposits are all positive steps, added Shankar.

Big Positives

The big positive from RBI's decisions, according to experts, has come in terms of the transparency of the OMO calendar through the G-sec acquisition program (GSAP), which is likely to support and stabilize long-term yields. "In this regard, RBI has announced GSAP of Rs. 1 lakh cr in 1Q FY22, of which Rs. 25,000 crore would be conducted on 15th April’21. This has provided some relief to the 10-year G-sec yield," said Nitin Shanbhag, Head - Investment Products, Motilal Oswal Private Wealth Management.

However, RBI has stated that CPI inflation continues to be a problem with this year CPI inflation expected to be around 5 percent levels. "Given the heavy borrowing program, it will be interesting to see how the investors bid in the auction as they have lost money and global yields are on an upward trajectory," said Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund.

Among other major decisions, RBI has also extended the National Electronic Funds Transfer (NEFT) and real-time gross settlement (RTGS) facilities to digital payments intermediaries.

Shilpa Mankar Ahluwalia, partner and head of fintech, Shardul Amarchand Mangaldas & Co. said: "Opening up NEFT and RTGS facilities to digital payment intermediaries is a big move by the RBI and aligned with its policy push for digital payments. Given the exponential growth in digital payments, dominated by the UPI infrastructure, this move will allow better product innovation and integration. It will also reduce systemic risk for digital payments."

RBI will now set up a committee for a comprehensive review of Asset Reconstruction Companies (ARCs). "I think this is a much-needed step to harness the full potential of ARCs so that the key issue of sizeable bad loans is addressed in a sustained and holistic manner. This is also crucial as economic growth revives and banks need the confidence to lend aggressively,” said Anshuman Panwar, Co-Founder, Creditas Solutions, a fintech company working in the debt recovery domain for financial institutions in India.

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