RBI Monetary Policy: RBI keeps repo rates unchanged

One of the key factors driving real estate sales in the last two-quarters of the

pandemic hit a year, i.e. 2020, was the lower home loan interest rate. The Reserve

Bank of India (RBI) keeps the repo rate unchanged in 2021 through a new monetary

policy, which means the home loan interest rates will remain unchanged this year too..

While many real estate companies welcomed the move, the directive will help the

home buyers also, especially new home buyers due to subsidy under Pradhan Mantri

Awas Yojna.

Experts agree that the RBI move was on planned lines and would further enhance the

confidence of new homebuyers who would like to take advantage of lower interest

rates. Over the last few months, several real estate projects have also been launched

across major metropolitan cities, a positive sign of recovery in this sector. Experts in

the real estate industry also believe that while revival for the real estate sector is on

the way these repo rates will also continue to remain unchanged even after the Covid-

19 impact eases out completely.

Other steps by Government to revive the housing demand

• The government’s decision to not levy any additional tax, under the new monetary policy, is also a relief for new homebuyers who are planning to invest in a home in 2021.

• RBI also ensures that banks and NBFCs (Non-banking Financial Companies) pass the rate cut benefits to customers with any lags. The government has separately announced packages for the real estate sector.

• To ease the inventory and complete the stalled project, apart from undertaking the stalled project under NBCC (National Buildings Construction Corporation Ltd). Any of these ventures are supervised by the Hon’ble Supreme Court.

• Liquidity in the real estate sector will be increased by the financial package announced by the Government.

Impact on the industry

Development in the real estate sector also affects its 270 allied industries, including

cement, steel, hardware, paint, home utilities/equipment manufacturers, etc. This

means that demand in real estate would also boost demand in other industries,

triggering the revival of small & medium scale industries, job creation, and faster

movement of the overall economic wheel. The estimates from fresh project launches

and sales of houses in markets also reflect a renewed confidence of new homebuyers

and the sector experts. Under the new monetary policy of RBI, a low repo rate would

allow these upward trends to continue in the near future as well.

The decision will also remove uncertainties in the markets.  With rural and urban

demand on the rise, along with the revival of industry and markets, the momentum in

the coming years will help residential construction. The problem with labor, skilled

employees, and other manufacturing and transportation-related problems will

disappear in the coming months with a major vaccination campaign, and all economic

activities will resume on a full scale. The severely hit sectors such as education,

hospitality, transport, and tourism are also reviving at a rapid pace, suggesting a big

recovery in the overall economy and overall demand, which will compensate for the job

losses due to the pandemic in 2020 and increase the purchasing power of such

individuals.

How homebuyers will benefit?

Under the new monetary policy, the unchanged repo rate lets banks and NBFCs

disburse more loans to home buyers who are planning to delay their intention to buy a

house for a year or two, will now prepone their home purchase date. This will also give

more liquidity into the real estate sector in turn surge in demand.  Among the real

estate companies, the government’s appeal for builders to sell unsold inventory has

also clicked and saw an upward trend during the festive season in late 2020.

In Addition, the controlled rate of inflation, which is below 6 percent for several years,

is also a plus for home buyers.  Home loan interest rates are significantly low with

many banks giving home loans under 7% interest rates, which are not expected to

change anytime soon, so it is a good opportunity for new homebuyers to own a house.

Though there are fewer chances of any change in repo rates and subsequent interest

rates any time soon, the rewards and offers made by the builders may go off the desk

once the revival is visible and consistent. So, this is a good time for new home buyers

to own their house as favorable times for hard bargain is here.