Unchanged repo rate was expected, earlier steps helping real estate

On the expected lines, the Reserve Bank of India (RBI) in its recent monetary policy review meeting maintained status quo on key policy rates, leaving key policy rates unchanged. Considering the repo rate, at which the central bank lends money to scheduled commercial banks in India, is already at a record low of 4%, the scope for lowering it further is certainly limited. However, the RBI has already taken a step that is likely to allow banks to lend more as housing loans to prospective buyers.

On October 9, the central bank rationalized the risk-weight norms and linked home loans with loan-to-value (LTV) ratios only for all new housing loans sanctioned up to March 31, 2022. Earlier, the risk weight percentage was decided by the size of the loan and the LTV ratio. While acknowledging the criticality of real estate in the economic recovery process, the RBI said home loans have a risk weightage of 35% in case the LTV is of up to 80%. The risk weightage will be 50% if the LTV is over 80%, the banking regulator said.

It becomes important to mention here that real estate being the second-biggest employment generating sector in India after agriculture will have a major role to play in the country’s overall economic recovery post Covid-19. Considering a substantial part of the country’s unorganized workforce is employed in this segment, the sector needs consistent government support in order to help the economy spring back to its feet, especially since the RBI itself expects a sharp GDP decline of 9.5% for FY 21 because of the impact of the Covid-19-related lockdowns.

The move translated into higher levels of home loan disbursements from banks that have been adopting a cautious approach towards big-ticket loans in the aftermath of the coronavirus and the subsequent economic crisis. By way of freeing up more capital in the hands of the creditors, the RBI ensured banks are able to cash in on the pent-up demand and translate the increased home loan inquiries into actual disbursals.

Even though buyers are more likely to invest in property right now than ever before as suggested in our research report ‘Concerned Yet Positive’, the monetary stress caused by the pandemic has been acting as a drag on the consumer spirit, depriving buyers of benefitting from a never-seen-before opportunity that has presented itself through a perfect combination of a low interest rate regime, significantly corrected property prices and attractive offers.

Actively participating in the recovery process, banks had already begun to lower home loan interest rates to substantially low levels. In fact, most public-sector banks are currently offering housing loans at an annual interest rate of sub-7%. Some of them have also announced waivers on processing fees and other associated charges to encourage borrowers. We are hopeful that banks will lend more vigorously, and RBI will enable them to support the ever-so-important component of the economy, i.e. real estate.

(By Vikas Wadhawan, Group CFO, Housing.com, Makaan.com & PropTiger.com)