Kolkata: The RBI Repo rate cut by 25 basis points announced by the central bank governor Sanjay Malhotra on Friday has sent a wave of expectation in an industry marked by slowdown in demand. Since the RBI governor made the announcement — though on expected lies — there has been a lot of discussion on how it can impact the housing sector demand. While the housing sector is one of the most significant retail loan segment, it also has a macro-economic multiplier since a rise in demand in housing can boost a number of big sectors such as cement, iron and steel, electricals, paint, decor industry, furniture and so on.
Veterans in the real estate and housing sector in India have whole-heartedly welcomed the RBI announcement. Some of them also said that it will help in injecting confidence among potential homebuyers, who are likely to be feel confident about taking loans especially after the significant income tax relief announced by FM Nirmala Sitharaman in Budget 2025.
‘Depends on individual banks, but whole benefit possible too’
Harshavardhan Neotia, chairman, Ambuja Neotia Group told News9live that the extent of reduction of home loan interest rates will surely depend on the management of individual banks but he said it is certainly possible that some banks pass on the entire reduction of 25 basis points to their customers. “Normally a lot of them (the banks) could pass on the entire extent of benefit to their customers, which will benefit both existing and potential customers. There is money in circulation but many potential homebuyers are not taking loans,” Neotia said. “A reduction in the repo rate by 25 basis points to 6.25% is a positive step toward boosting credit availability and making home loans more accessible. Along with recent tax incentives, this move is expected to drive spending and investment,” he added.
In the words of Sanjay Dutt, CEO and MD, TATA Realty and Infrastructure, the rate cut could especially deliver an impact in the affordable housing segment. “The RBI’s decision to cut the repo rate to 6.25% is a welcome move that stands to make home loans more affordable, thus easing the financial burden on aspiring homeowners. While the realty sector has been witnessing a robust demand and positive sentiment for premium and luxury residential real estate, a reduction of 25 basis points will immensely benefit the affordable housing segment, especially in Tier 2 and 3 cities, aligning with the government’s vision of inclusive growth and urban development,” Dutt said.
How much reduction in EMI
Since almost everyone goes for flexi rates on home loans nowadays, a decline in the Repo Rate would eventually lead to a decline in the EMIs of a borrower, said investment strategist and director Wishlist Capital Nilanjan Dey. “If we assume that a homebuyer wants to take a home loan with a repayment tenure of say 20 years. If we also assume that a bank passes on the entire benefit of 25 basis points to its customers, it could lead to about 1.8% decline in EMI for him/her. Obviously, if the lender passes on a smaller extent of benefit, the reduction in EMI will be lower,” said Dey.
Some experts such as Himadri Mukhopadhyay, who is the secretary of Income Tax Bar Association Calcutta, pointed out that another benefit that existing home loan borrowers can choose is to reduce the tenure of the home loan and not get the EMI reduced. Reducing the repayment tenure means the individual will be free from paying EMIs by a few months.
After the Reserve Bank of India (RBI) announced a 25 basis point rate cut on February 7, the moot question has been how much of the benefit will the lenders such as banks and NBFCs pass on to the customer. Since the step has been designed to stimulate demand, some lenders can pass on the entire benefit to customers. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
