The announcement of reduction in the repo rate from 7.25 bps (basis points) to 6.75 bps (basis points) on September 29, 2015 by RBI has come as a blessing for prospective purchasers of property and houses. It will make home loans cheaper as a reduction in policy rate by 50 basis points will encourage banks to get mild towards lending rates. This step of RBI Governor is seen as a strong step to strengthen the position of Real Estate Sector in the country.

Reserve Bank of India governor, Dr. Raghuram Rajan

The instant effect of this act by RBI can be seen as a positive move as the banks of the country are making prompt alterations to attract customers by cutting their lending rates. After the reduction in interest rates by RBI, Andhra Bank has cut its benchmark lending rate by 0.25 percent and SBI followed by cutting its benchmark lending rate by 0.40 percent rate and Axis Bank cutting its benchmark rate by 0.35 percent. The new rate will come into effect from October 5, 2015.

Reserve Bank of India governor, Dr. Raghuram Rajan has cut the repo rate by 50 basis points (bps) to four year low at 6.75. As home loan is linked to base rate, a decrease in base rate will be beneficial for borrowers.

“At a time when Indian cities are witnessing submissive housing sales, this correction in prime lending rates would help inspire home buyers’ interest and spur home-buying decisions,” Sanjay Dutt, managing director, India, Cushman & Wakefield said.

Sanjay Dutt, managing director, India, Cushman & Wakefield

“Although demand from end-users may take a bit longer to transform to active buying, buyer inquiries may increase in the short-term in expectation of lenders passing on the benefits of reduced interest rates. However, the extent to which lenders pass on the benefits to customers would determine the actual magnitude of increased housing sales.” Sanjay Dutt, managing director, India, Cushman & Wakefield said.

“On the developers’ part, the cost of borrowing could also decrease marginally, who have been reeling under high funding cost and increasing costs of construction,” Dutt added.

Reduction in the repo rate will lower cost to the builders, developers and the final borrower. The real estate builders and developers are happy as they feel this move of RBI Governor will lower rates on home loans and lessen the burden of home buyers.

“Considering the overall economic situation and challenges being faced by the industry, we welcome the second reduction in repo rates from January in the hope that it results in lower rates for home loans, which will ease the burden on the home buyers and create a positive traction on demand for housing.

Shekhar Reddy, president of the Confederation of Real Estate Developers’ Association of India (CREDAI).

However, there is a need for larger cuts in the interest rates to facilitate reduction in EMIs and increasing the eligibility of the common man to buy a house,” says C Shekar Reddy, president of the Confederation of Real Estate Developers’ Association of India (CREDAI).

The cut in repo rate by 50 basis points is expected to improve market during the festive season. The festive season will begin from Navratri soon followed by Dussehra and Diwali. With the cut in rate, it is expected that sales in real estate will increase. There will be a change in the market views to the benefit of home buyers and stakeholders of real estate. Since the rates of real estate are steady, the home buyers will take advantage of the situation and buy properties of their choice. Builders are of the opinion that this move of RBI Governor will boost the market of real estate as home loans may get cheaper. The Real Estate developers are asking banks to pass the benefit of cut in the repo rate to home buyers who avail home loans.

The cut in repo rate has not only boosted spirits of realty sector, but has encouraged manufacturing industry and all businesses in general, making them hopeful for sales in the coming festive season. If the banks give the benefit of repo rate cut by providing home loans at lower lending rates, the home loan borrowers can also benefit from the move. This will help to revive housing demands and increase Other than Real Estate and housing sector, RBI rate cut has benefitted automobiles and FMCG Sectors as well.