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    Good News! RBI announces record low- Interest rates for the 7th time!

    • 5 min read
    • Last Modified Date: February 2, 2023
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    The Reserve Bank of India (RBI) declared record low interest rates on home loans on August 6th, opting for economic revival above inflation for the seventh time. The RBI Governor remarked that the loan rate for personal residence and commercial real estate has decreased significantly, affecting the employment-intensive real estate industry. Thus the six-member Monetary Policy Committee agreed unanimously to keep the main repurchase rate at 4%, but there was disagreement on whether the lower-for-longer posture should be maintained. This article deals with the recent RBI monetary policy and its expected impact on the real estate sector.

    Recent RBI Monetary Policy 

    The government claimed that the success of the RBI’s monetary policy measures and operations is evident in the significant improvement in transmission throughout the current easing cycle when releasing the third bi-monthly monetary policy. Since February 2019, the repo rate has been cut by 250 basis points, resulting in a 217 basis point fall in the weighted average lending rate (WALR) on new rupee loans. The burden on households has also been eased as a result of the lower loan rate.

    MSMEs, housing, and other significant credit market sectors have seen better transmission to lending rates. The low-interest strategy has also helped the household sector save money on loan servicing. The huge fall in interest rates on personal housing loans and commercial real estate loans bodes well for the economy, as both sectors have broad backward and forward linkages and employ a large number of people.

    How did the real estate industry welcome the recent RBI policy?

    It is an undisputed fact that the pandemic and the lockdown have been tiring for not only people but also for businesses as well as the economy. Uncertainty and financial constraints have filled our lives which have led to the postponement of our desires to own a home. The record low repo rate was introduced by the RBI to resolve the pandemic imposed issues of the real estate sector and to aid the desires of real estate investors. The repo rate has remained unchanged for the 7th successive time now. Home loan borrowers benefit from the unaltered repo rate regime since floating retail loan rates, which are closely tied to external benchmark repo rates, are at their lowest level in two decades. The persistence of the low-interest rate regime helps to maintain the affordability that has become the new hallmark of the housing market, both during and before the pandemic.

    Even in the face of inflationary pressure, RBI has maintained its accommodative approach by lowering the repo rate by 250 basis points regularly since February 2019. The real estate experts think that this indicates that the market is bouncing back with a gradual economic recovery; resurgent consumption in the aftermath of urban job stability is driving up private spending.

    Further, the real estate experts added that with a good GDP projection of 9.5 percent for FY 21-22, policy normalization and ongoing financial inflow are biased towards a healthy economic rebound. This will increase investment and credit improvement for the industry, as well as a shift in the growth yield curve.

    The rise in retail home loans with less than 2% non-performing assets (NPA) reflects the underlying surge in housing demand, which provides stability and security in difficult times. Furthermore, the low-interest rate would boost home purchasing optimism and provide a financial cushion to close deals amid seasonal tailwinds. With states like West Bengal and Karnataka recently declaring stamp duty exemptions, the banking regulator’s move will raise demand for inexpensive and mid-segment homes, spur new home launches, and create favorable market conditions for home purchases.

    The bank has also drawn attention to the promising high-frequency indicators such as consumption, investment, and external demand, which are regaining traction as the economy opens up in a phased manner, citing high inflation levels as being transitory and driven by short-term supply-side constraints. 

    Green shoots in the residential sector have emerged in unison with the gradual recovery in the economic situation as enterprises reopen, according to the analyst. Lower home loan rates, aided by the RBI’s policy rate stance, steady prices, and developer-friendly payment plans and schemes are all helping to convert pent-up demand into sales. The sector is likely to achieve a robust comeback in H2 2021 if the lower trend in COVID-19 cases continues.

    A prolonged period of historically low interest rates would ensure that house loan rates remained at present low levels, assisting the real estate sector’s recovery. Many real estate developers have also refinanced their borrowings at reduced interest rates to take advantage of the lower interest rate environment, which is critical at this time when company operations are under severe stress. The RBI MPC’s decision bodes positively for the real estate industry in general, and home purchasers in particular, because the record low-interest-rate environment will allow a huge number of people to invest in real estate.

    Bottom line

    Since homebuyer sentiment has improved recently as a result of increased house affordability in India, the RBI’s move will encourage buyers and investors to invest in safe assets such as real estate. The RBI’s unprecedented liquidity support for the economy in the aftermath of the coronavirus outbreak is to be applauded. Assetmonk is the fastest-growing tech-enabled real estate investment platform in India, specializing in real estate crowdfunding and fractional ownership. Our products are categorized into Growth, Growth Plus, and Yield Products. The properties listed on our websites are carefully listed after conducting due diligence and offer a 14-21% return on the investment. 

    RBI announces record low-interest rates on home loans FAQ's:

    The current home loan interest stands at 6.95% p.a.

    The expansionary monetary policy includes things like buying Treasury notes, slashing interest rates on bank loans, and lowering the reserve requirement. All of these measures boost the money supply, lowering interest rates. This encourages financial institutions to lend and businesses to borrow.

    The level of interest rates, which is influenced by monetary policy, has an impact on home prices. Construction activity and its impact on consumption influence aggregate demand in the housing market. Booms and busts in the housing market can jeopardize financial and macroeconomic stability, resulting in consumer price inflation.

    SBI has emphasized that the bank’s original interest rates, which began at 6.95 percent, will be reinstated on April 1, 2021, and that there will be no increase in Home Loan Interest Rates.

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