Interest Rate Cut for Home Loans: A Limited Boost for Residential Market?
The recent move by public sector banks to reduce interest rates for home loans up to Rs 20 lakh is expected to have a slight positive impact on the property market. However, developers and experts consensus is that this alone may not be enough to provide a significant boost to the residential sector immediately.
Reviving Demand, but with Limitations
- DLF's Perspective: According to DLF CFO Ramesh Sanka, the rate cuts will revive demand, which had slowed down in the past couple of months. Certain DLF projects in New Gurgaon and Chennai, priced around Rs 28 lakh, are anticipated to benefit from this move. Encouraged by the demand in the Rs 20-25 lakh category and bank incentives, DLF plans to launch several projects in this category in the coming quarters.
- Smaller Developers' Expectations: Smaller developers, who have been focusing on budget homes, foresee larger developers joining the affordable housing segment. As noted by Gaursons joint MD Manoj Gaur, developers are already adapting by reducing apartment sizes and offering fewer amenities to lower the cost of dwelling units.
Skepticism Over the Impact
- Limited Influence: Many developers and analysts, including Omaxe chairman Rohtas Goel, believe the rate cut's impact will be limited. With current project prices exceeding the Rs 20 lakh threshold, and the challenge of acquiring cheaper land for new projects, the incentive is not seen as a game-changer.
- Affordability and Sentiment: Real estate analyst Rupesh Sankhe from Centrum highlights that home buying decisions hinge on prices, interest rates, and market sentiment. A further 15-20% price drop in Tier II and Tier III cities is needed to enhance affordability. Additionally, Anshuman Magazine, CB Richard Ellis' South Asia MD, emphasizes the overarching importance of sentiment, noting that fear of job loss can deter potential home buyers.
The Bigger Picture
- Average Home Loan Size: With the average home loan in India standing at Rs 7.5 lakh, the rate cuts for loans up to Rs 20 lakh could have a substantial impact. However, the stark reality of inflated property prices (threefold in most markets, with averages of Rs 50 lakh in Delhi/Mumbai and Rs 25-30 lakh in Tier II cities) means the government's initiative primarily targets smaller cities and metropolitan suburbs.