RBI's rate cut may spur housing demand

MUMBAI: The Reserve Bank of India’s second surprise rate cut outside the regular policy review may not boost the housing demand immediately, but is being seen as reversing the direction of rate cycle and kick-starting the housing demand.

Developers are excited by the move to soften interest rates which would make home loans cheaper and help improve the sluggish sales scenario. A possible reduction in construction finance, currently available at up to 16%, is also seen helping them cut financing costs.

"The rate cuts announced in January had not translated into action by the banks, but a cumulative cut now amounting to 0.5%, will enhance lending powers of the banks. It will allow banks to cut down interest rates on home loans enabling new consumers to take advantage of the low interest rates in the real estate market," said Brotin Banerjee, MD and CEO, Tata Housing Development Company.

On Wednesday, RBI slashed repo rate by 25 basis points to 7.5%. It had earlier reduced the rate by 25 basis points on January 15. "The rate cut may not revive demand immediately, but there's an optimism, and positive sentiment is finally moving towards ground action. These cuts will translate into sales possibilities for developers and reduction in their construction financing cost," said Ambar Maheshwari, CEO of Indiabulls PE Fund.

The demand for housing has been weakening for nearly two years now in the backdrop of unaffordable property prices and high interest rates.