Real estate sector to benefit from cuts in interest rates and extension of loan moratorium by RBI

By : 360 Realtors

11 June, 2020

The Reserve Bank of India has announced that the benchmark lending rate will be lowered by 30%. Along with this, term loan moratorium will also be extended by 3 months. Currently, the RBI is making a number of such changes to help all the sectors affected by the COVID-19 crisis and help them gain liquidity access. The slashing of the interest rate and the extension of the loan moratorium have been received well by the real estate sector.

At a time when the real estate sector is unsure about its future, these decisions of the RBI are welcomed by the developers. The pandemic had struck the realty sector right when it was starting to revive from a major liquidity crisis. The lockdown has been a major blow to the industry. The slashing of the repo rates would ease up the liquidity in the realty sector and also allow the banks to lend more money.

These changes would also make it easier for the homebuyers to purchase properties, thus acting as an incentive. For example, the reduction in the repo rate would in turn increase the purchasing power of the buyers. The accumulated interest during the moratorium period would be converted into a term loan, which means that the buyers won’t have to pay up the accumulated interest immediately. The buyers’ sentiment would undergo an uplift due to the cuts in the repo rate, thus increasing sales. It is expected that this would especially benefit the affordable housing sector. This is because most people buying affordable homes opt for EMIs and seek the most economic options. Lower repo rates would result in low EMIs, giving these buyers a major opportunity.

While the real estate sector was happy with these moves, some of the leading developers expressed concerns regarding these being only temporary relief. According to them, the RBI should have taken more stringent measures. For quite a long period, they have been demanding a one-time restructuring of the loans. While the announcements made by the RBI would improve liquidity, measures to boost up the demand for homes is also necessary. Over the last few years, the real estate sector had been undergoing a slowdown, with a growing inventory of unsold properties. It is being hoped that RBI would undertake more measures to help the real estate sector revive faster.