Property developers, who are hit by ongoing credit crunch, see an upswing in demand for houses as home loan rates are expected to come down after the Reserve Bank cut repo rate, the rate at which banks borrow from RBI, today by 100 basis points.
"The cut in repo rate should reflect in lowering of home loan rates. People should be able to buy homes at a cheaper rate, only then we will can sell more homes,'' said Rajeev Talwar, group executive director of DLF.
Added Sanjay Chandra, managing director of Unitech: "The repo rate will make bankers revise mortgage rates which will improve affordability of houses and boost home sales,'' Chandra said.
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Over the last nine months, the Reserve Bank of India has raised the repo rate by 125 basis points to tame the rising inflation. Commercial banks have in turn raised their consumer loan rates by 50-100 basis points. Thus, on an average, the monthly installment on a Rs 10-lakh loan for 20 years has risen over 50 per cent to Rs 12,740 on a 14.25 per cent interest rate from Rs 8,060 (7.5 per cent interest rate) five years ago.
Due to high interest rates, property sales have halved from the beginning of the current year, blocking the source of funds for developers.
Rohtas Goel, chairman and MD, Omaxe Ltd said he expects home loan interest rates to fall. "The cut will make funds cheaper for banks which may in turn decrease the interest rates. Since home loans are an asset based secured loan in a bank’s portfolio, they will see an immediate fall in rate of interest", he said.
Apart from pushing home sales, developers now expect banks becoming more flexible in lending to real estate sector. Commercial banks have almost stopped lending to property developers after the crecit crunch accentuated in the global markets, limiting their source of funding.
"When property developers used to apply for working capital, banks were being very conservative in lending. Now I hope working capital will come by easily. Builders can look forward to more loan from banks now,'' said Rajesh Jaggi, managing director, Ashok Piramal group's realty arm Peninsula Land.
"I hope banks will release more funds to real estate companies and projects now. Liquidity will improve and it will certainly reduce the cost of funds for companies like us, '' said Pradeep Jain, chairman, Parsvnath Developers.