The Coronavirus outbreak has seriously impacted homebuyers, particularly those dealing with significant home loans. In response, the Government's recent move to introduce a three-month moratorium on home loan repayments aims to not only alleviate the financial strain on impacted buyers but also aid in their quest for stability.
The Reserve Bank of India (RBI) has made a critical decision by cutting the Repo Rate (RR) and allowing a three-month suspension on all term mortgage repayments, reflecting the widespread effects of the COVID-19 pandemic on individuals, businesses, and the Indian economy at large. The three-month pause in repayments, effective from March 1, 2020, is expected to provide significant support to those burdened by substantial bank debts. Within the real estate context, this action serves as a relief for home loan borrowers and related ventures.
The postponement of interest payments on working capital for three months will alleviate the liquidity challenges facing developers. Ultimately, this relief will ease the debt pressure on real estate contractors as the economy begins to recover. Collectively, these accommodating measures are poised to ensure that ample liquidity flows through all realty sectors, enabling the industry to regain its earlier momentum swiftly.
Per the announcement, all banks and financial institutions, including Housing Finance Companies (HFCs) and Non-Banking Finance Companies (NBFCs), are expected to implement this deferral immediately, providing maximum relief to their clientele with home loans and reducing their financial burdens. With potential income disruptions such as pay cuts tied to the lockdown, this initiative will assist borrowers in reassessing their financial priorities during these uncertain times.
Moreover, with the anticipated increase in housing demand in the near future, this moratorium allows builders to recalibrate their business strategies and focus on high-priority projects. It's paramount to understand that this moratorium is designed to provide support to borrowers facing cash flow difficulties due to the pandemic. It's not a waiver; rather, it postpones payments to a later date without altering loan terms. Importantly, interest will continue to accrue on outstanding amounts during the moratorium. In a positive note, the RBI has instructed credit bureaus to ensure that this delay does not negatively affect borrowers' credit scores.
At present, the Government's main objective is to keep the economy afloat amid challenges. While these measures provide short-term relief for citizens, the long-term economic impacts will hinge significantly on the severity, speed, and duration of the pandemic's effects.
Additionally, the decision to cut the repo rate by 75 basis points is equally impactful, and the real estate industry is applauding this move. The reverse repo rate cut of 90 basis points incentivizes banks to lend to productive sectors rather than idly holding funds. These strategic steps are essential for stimulating economic growth. Furthermore, the revival of the real estate sector hinges on the successful transmission of rate cuts to consumers. A reduction in interest rates will notably lower borrowing costs for homebuyers and builders alike. Given that the real estate sector is the second-largest employer in India, it is crucial to protect the interests of this industry and its stakeholders.