Get ready to pay less for home loans
RBI move will lead to increased liquidity. Reduction of 1% in home loans will bring EMIs down by 8-10%
The Reserve Bank of India’s move to grant infrastructure status and priority sector lending to affordable housing this week will allow the real estate sector to finally access cheaper funding and ease norms for banks to raise long- ter m funds for financing affordable housing projects. This is likely to improve liquidity and make houses affordable, since a 1% reduction in housing loan interest rates could reduce EMI of a home loan borrower by 8% to 10%.
This step, coupled with recent income tax incentives provided in Budget 2014- 15 would help boost an individual’s savings by about ₹ 1 lakh, says Neeraj Bansal, partner and head of real estate and construction, KPMG in India.
Currently, housing loans below ₹ 20 lakh have lower interest rates as they fall into priority sector lending. With the RBI step, loans of up to ₹ 50 lakh in six metropolitan cities ( housing costing up to ₹ 65 lakh) and ₹ 40 lakh in other cities (housing costing up to ₹ 50 lakh) — a major chunk of housing demand — are set to get cheaper, he adds.
According to Sanjay Dutt, executive managing director, South Asia, Cushman and Wakefield, allowing banks to raise long-term funds at cheaper rates, including through external commercial borrowing (ECB), will help developers and government agencies involved in affordable housing projects to increase the supply of housing.
“We may also see more developers launch smaller units to keep the overall ticket price within the parameters set by the RBI, including redesigning and resizing of projects that have still not been launched,” he adds.
The criteria defining affordable housing aptly covers a cross-section of lowincome and middle-income households, and reflects the intent of the government to deliver upon its commitment of ‘housing for all by 2022,’ says Brotin Banerjee, MD, Tata Housing.