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Real estate sector welcomes RBI measures; awaits one-time debt restructuring demand

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Real estate sector welcomes RBI measures; awaits one-time debt restructuring demand

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The real estate industry players have welcomed the measures taken by the RBI as it would not only ease liquidity for the developers but also lower the home loan interest rates for the homebuyers.

Real estate sector welcomes RBI measures; awaits one-time debt restructuring demand
Reserve Bank of India (RBI) Governor Shaktikanta Das on May 22 announced several measures to tackle the devastating economic impact of the coronavirus-induced lockdown, including a 40 basis point off-cycle repo rate cut and extension of loan moratorium scheme.
Following the reduction, the repo rate has come down to 4 percent and the reverse repo rate has been cut to 3.35 percent. RBI has extended loan moratorium as well until August 31, which makes it a six-month moratorium.
RBI on March 27 had permitted all lending institutions to allow a three-month moratorium relief to their borrowers from March 1, 2020, up to May 31, 2020 to help ease any debt servicing for borrowers impacted due to COVID-19. The moratorium on interest on working capital was also extended by three months. Also, interest accumulated for the six-month moratorium period can be converted into a term loan, Das said.
Real estate industry players have welcomed the measures taken by RBI as it would not only ease liquidity for the developers, but lower the home loan interest rates for homebuyers.
“This is another big step which will ease liquidity for developers - the rate cut will not only send out positive signals but will enable banks to lend even more. Thus, the rate cuts combined with the further extension of loan moratoriums by 3 months up to August 31, 2020 augurs well for the real estate sector in the times to come,” said Anuj Puri, Chairman – ANAROCK Property Consultants.
Home loan interest rates have gone down substantially over the last year and are presently at an all-time low averaging between 7.15 percent to 7.8 percent.
“Today’s repo rate cut will further help banks to lower home loan interest rates, which may get several more fence-sitters onto the market. Moreover, the repo rate cut may compel banks to reduce the interest rates for FDs even further - this could result in even more people leaning towards housing as a better investment option,” Puri added.
Niranjan Hiranandani, President of Assocham and NAREDCO said that measures like the reduction in repo rate by 40 basis points and the extension of term loan moratorium until August were an honest step to support several sectors hit by contraction of economic activity and help revive demand crippled by the lockdown.
He stated that the industry body welcomed the announcement by the RBI governor to convert the accumulated interest for the moratorium period into a term loan. “It will also provide some relief as the borrower will not have to immediately repay the accumulated interest on the loan after the moratorium ends,” Hiranandani said.
However, the industry veteran added that the real estate industry still awaited one-time debt restructuring as a holistic measure to give a breather to industries across the board and help in its quick revival.
Coining similar views, Shishir Baijal, Chairman and Managing Director of Knight Frank India said that it would have been a big respite if the long-standing real estate industry demand for one-time restructuring of loans were allowed along with the measures announced on May 22.
Baijal noted that with a cumulative 115 basis point rate cut by RBI as a response to the impact of COVID -19, India is in line with the rate cuts announced by developed economies like the US (150 bps) and UK (65 bps).
“Given the backdrop of an unprecedented economic situation, we are happy that the RBI has reduced the key policy rate and taken note of rate cut transmission to borrowers. The extension on the moratorium and improved terms will provide a breather to industry and household borrowers alike,” Baijal said.
Ashok Mohanani, Chairman, EKTA World & President-Elect NAREDCO, Maharashtra said that the RBI announcement will indeed act as a remedial measure to ail the economy as the government previously lent its support by providing a fiscal and monetary stimulus worth Rs 20.97 lakh crore.
“The measures by RBI is expected to direct positively and reduce the cost of EMI on loans taken by the homebuyers. The moratorium on housing EMI’s and deferment of interest payments by another three months will give a lot of relief to consumers as they can now rearrange their finances,” Mohanani said.
He expects investments in the real estate sector to rise as the loans will be available easily but also said that the quick transmission will be key to the huge liquidity infused by RBI.
Further, Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani said that there will definitely be a surge in demand for homes as buyers, including millennials and NRIs who were searching to have their own homes which they could customise will now be keen to take decisions of owning homes.
Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com is of the view that the RBI measures will not only help developers but also homebuyers who have been under extreme pressure due to the prolonged lockdown which has impacted their income.
“This along with the move of extending loan moratorium for another six months will be extremely helpful in lowering the burden for those who are paying EMIs or using credit cards and lower financial stress. What needs to be seen is how quickly the banks reflect this change in their respective rates,” Agarwala said.
Farshid Cooper, MD, Spenta Corporation quoted, “The revised repo rate and the extension of the moratorium would provide relief to borrowers, especially non-essentials business owners and self-employed as it would be difficult for them to manage their financial needs during this challenging time. This move is likely to further ease the pressure on individuals with serious financial commitments.”
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