On the New Year’s Eve, Prime Minister, Mr. Narendra Modi announced the interest subvention for housing loans for both middle class and poor. It was soon followed by rate cuts from various banks that include government-owned, State Bank of India.
The move is welcomed by the home buyers and real estate fraternity. However, the present question that remains is, whether a rate cut can revive the chance of the real estate sector that is struggling with liquidity crunch and slow sales.
The interest rate cut for home buyers:
• In the past six years, 2017 begins with the lowest loan rates for housing.
• The rate cut makes a saving of 34,000 yearly for a loan of Rs.50 lakhs.
• The rate cut by Rs. 2,850 every month to make it Rs.41,822.
• At present, one has to pay Rs. 44, 665 as EMI for a home loan amount of Rs.50 lakhs.
The Impact of Job Market on Real Estate:
The growth of job market is directly linked with the boom in housing market. The last rally of property was driven by IT/ITeS sectors. After Modi Government took charge in the year 2014, for a full year 4.93 lakhs jobs were added,, across the eight employment-intensive industries – powerloom/handloom, BPO/IT, transport, jewelry and gems, automobiles, metals, leather and textiles. According to the Labor Ministry’s 27th Quarterly Employment Survey of the 8 employment-intensive industries, the first quarter of FY 2015-16, there were almost 43,000 job losses. In 2010, at their peak, these sectors added 1.1 million jobs.
Fundamental Challenges remain although Interest Rate Cuts may Boost Sentiments:
The finance and accounts president, M3M – Mr. Atul Banshal maintains that rate cuts might boost sentiments that were harmed by demonetization and set off consumption demand in a big way.
The MD of Hawelia Group, Mr. Nikhil Hawelia feels that rate cuts are substantial. He believes it will improve sentiments, which however wouldn’t be enough to revive the fortunes of the sector.
Key Declaration Along with Rate Cut
• An additional 200 billion would be given to NABARD to finance societies, banks and district cooperatives.
• 3 crore Kisan credit cards would be converted to Rupay cards in the next three months. It will enable them to directly sell/buy through the card and there will be no need to rush to banks.
• Senior citizens would receive an 8% interest on 10-year deposits for up to 7.5 lakhs.
• For the rabi season, farmers can avail 60 days interest that the government would pay from societies, and district cooperative banks.
• Credit guarantee from the existing limit of Rs. 1crore will be raised to Rs. 2 crore for small traders.
• Banks are requested to raise the credit limit of small business from 20% – 25%.
• Interest subvention of 3% would be given to villages for home renovation loans up to Rs. 2 lakhs.
• Middle class and poor people would get home loans up to Rs. 9 lakhs and 12 lakhs for3% and 4% interest subvention, respectively.