Giving a boost to the home buyers’ sentiments, the Reserve Bank of India (RBI) has brought down the repo rate to 6.7 per cent from 7.25 per cent. This is expected to bring down the home loan EMIs if banks pass on the benefits to consumers.

Since home loans are linked to base rates, any reduction in these is expected to benefit the borrower, if the interest rates are lowered by banks. Currently, the home loan rate varies in a range of 9.75-10.25 per cent.

Unexpected move

Industry leaders are impressed with the bold step taken by the RBI governor. As the rates have come down to a four-year low, experts are expecting banks to pass on the benefit to the consumers.

“As opposed to the market’s expectation of a 25 basis points cut, the RBI has delivered an astounding 50 basis points reduction. With this, it has clearly abandoned its cautious baby-steps approach and assumed a bolder stance. Obviously because the current economic fundamentals provide it with room to do so,” says Anuj Puri, Chairman & Country Head, JLL India.

Revival of sales

The real estate sector has welcomed the move as the announcement has come just in time, when the festive season is approaching. Some of the experts are quoting the move as a ‘Diwali Gift’ to aspiring home buyers.

“At a time when Indian cities are witnessing subdued housing sales, this correction in prime lending rates would help stimulate the home buyer’s interest and spur the home-buying decision. Although demand from end-users may take a little longer to transform into active buying, the buyer inquiries may increase in expectation of lenders passing on the benefits of the reduced interest rates,” says Sanjay Dutt, Managing Director, India, Cushman & Wakefield.

Boost to affordable housing

Not just clearing of unsold stock, the move is also expected to create a favorable atmosphere for affordable housing. “This rate cut coupled with the interest subsidy scheme announced under the Pradhan Mantri Awas Yojna Mission Housing for All 2022, will see the affordability quotient further going up for the EWS and LIG segments,” says Deepak Joshi – president and chief business officer for Religare’s affordable housing loans business.

“For the affordable housing sector, the outlook is nevertheless bright since the RBI governor has made provisions for less stringent and broader in scope, lending to this sector,” adds Puri.

A cut of 125 basis points in one calendar year is a big move, say experts. However, it is imperative to understand that cutting rates alone won’t trigger home buyer’s to sign the dotted line. To clear up the piling stock, banks need to facilitate easy home loans on lesser rates so it becomes feasible for a mid-segment home buyer to afford the EMIs.