RBI Rate Cut Vs. Realty Market and Loans EMI

Reserve Bank of India has brought down the Repo Rates by 25 basis points which is now 6.25%.  This move is expected to

• Bring down the interest rates on Home Loans and
• Bring down the EMIs (Equated Monthly Instalments) on Loans.

The overall feeling in the Economy is:

1. Both Builders and analysts predict the cut will have a positive impact on the housing market.
2. There will be more funds available for lending which would, in turn, enable the sector with increased liquidity.
3. Also, reduction in the Home Loan interest will result in an increased sale and thus encourage fence-sitters to take a dip. Obviously, the sales will boost if the banks bring down the rates.
4. Also, in the realty sector, the market does not depend only on the buyers’ sentiments, but there are also other factors, which come into picture namely:
   1. Liquidity issues as is faced by NBFCs which curbs disbursement of loans
   2. Repayment capability of the borrowers and developers.
5. It may be recalled that RBI had in the past brought out very strict lending norms and hiked the interest rates on home loans. Also, the builders went on to quote very high prices for the properties which resulted in the buyers not being able to buy houses.

Note:

Repo Rate is the interest that RBI pays when they borrow funds to meet short term fund requirements.