November 2016 | Back to all Real Estate Articles
Following the incessant rate cuts by Reserve Bank of India (RBI), banks are finally passing the benefit to homebuyers by reducing their home loan interest rates. We analyses how this will impact the homebuyer and the developer fraternity.
The significant reduction in home loan rates by four major lenders by up to 0.15 percent just after the festive season has the market rejoicing. Homebuyers having second thoughts about buying their dream home have a reason to celebrate and take the plunge.
Leading the pack, State Bank of India (SBI) gave an after Diwali gift to their new customers by slashing home loan interest rate by 0.15 percent. HDFC, ICICI, and Indiabulls Housing Finance Ltd (IBHFL) followed suit with similar cuts.
The revised rates stand as below :
|Bank||Previous Rate||New Rate
(For Loan upto For Rs 75 Lakh)
(For Loan Beyond For Rs 75 Lakh)
Dhaval Ajmera, Director, Ajmera Realty, shares that new borrowers of a loan of, say, Rs 50 lakh for a term period of 20 years will be able to save about Rs 3,300 per month on their EMIs. Experts share that homebuyers can earn additional benefit by investing this money in various modes such as bank deposits.
All these banks offer an additional cut of 0.15 percent for women borrowers, which brings the effective interest rates for women down to 9.10-9.25 percent. Spurred by the attractive rates, the industry expects a greater number of women buyers to enter the real estate market in the coming months.
While these lower rates are being offered to new borrowers, existing borrowers need not lose heart. They can still avail the benefit of the rate cuts by switching their home loan over to a new lender. Ajmera concurs that it makes sense for an existing customer to take their loan over to another lender. He explains with an example that an existing borrower who had taken a loan in January 2015 at the average rate of 10.15 percent can now transfer their loan to another bank and avail a revised rate of 9.15-9.2 percent. It will entail a nominal transfer fee, which can range from 0.2 percent to 0.5 percent depending on the outstanding loan amount.
Property Analyser comments, "This has been the trigger the market was eagerly waiting for and the developers will soon start seeing fresh interest from buyers." These lower rates are available on all loans taken until the end of November which might lead to a spurt in residential sales beginning November. A positive economy buoyed by the recent regulatory reforms and falling interest rates can provide a boost to the buyer confidence and is also expected to give affordable housing a significant impetus in the coming months. Meanwhile, developers plan to speed up their projects that are almost complete in order to reap the benefits of the upswing in the market. With the prospective buyers better placed to make purchases, it is expected that the market will witness greater enquiries as well.
Meanwhile, some industry experts and homebuyers are not too thrilled about these rate cuts as they believe that the banks could have reduced the rates even further. Out of the 175 basis points (bps) reduced by RBI since January 2015, banks have passed less than half of the benefit (60-90 bps) to the customers.
However, even this revision of home loan rates can significantly benefit the real estate market. Already the rate cuts have created a positive market sentiment, share experts. This rate reduction by major lenders is expected to pressurise other lenders as well as slash their rates in order to stay ahead of competition.