Real Estate buying in Delhi NCR may benefit when interest rates

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Here is good news for home buyers and realty investors in Delhi NCR region. In its third quarter review of monetary policy that the RBI signaled a change in the focus of its policy initiatives — from containing price rise to fuel economic growth.

In a policy statement, the RBI governor D Subbarao said in a statement that the balance of the policy stance has shifted to growth.  

This decision will help real estate sector in a great way. As the economic growth accelerates, the mood in the markets will become more vibrant. The new direction of the policy initiatives of the central bank, experts feel, is towards softening interest rates. It will bring back investors and home buyers, who were so far not ready to take the plunge in the market, owing to the uncertain market conditions.

However, the maximum benefit will accrue to the first-movers. At present, prices of apartments in many micro markets like Noida, Greater Noida, Ghaziabad, Crossings Republik, Raj Nagar Extension, etc, are very competitive.

But, as soon as interest rates fall and the economy revives, the sentiment will turn bullish and prices will appreciate fast. Therefore, it is advisable to buy a house on variable rate of interest, at present. In this case, initially, you may have to pay the EMIs at the prevailing high interest rates. But, as soon as interest rates fall, your EMI will also get lowered. In the bargain, you will get your house at the current lower price. However, if you wait for the interest rate to fall, the prices will go up by then.

As a major shift in its policy initiatives, the central bank decided to infuse liquidity into the monetary system — first time since March 2009.

On Tuesday, the RBI decided to reduce the requirements for banks to keep cash balance with the central bank, which is also known as cash reserve ratio (CRR), by half a percentage point, to 5.5% of total deposits. This will release around Rs 32,000 crore, which can be loaned to the productive sectors. This will not only increase the availability of funds in the market, but will also help soften the interest rates.

Chanda Kochhar, MD and CEO of ICICI Bank said that the CRR cut could signal a turning point in the economic trajectory. “Going forward”, she says, “we could see an improvement in confidence among companies and investors, which would take India’s growth back to its earlier trajectory in the medium term.”

The last few months have seen a moderation in growth and volatility in capital flows and currency, she says. RBI’s current year growth projection of 7% is in line with the expectations of the government and many market participants. At the same time, the RBI is estimating an improvement in the growth rate in the next fiscal year, which will certainly help in improving the sentiments in the market.

Anshul Jain, the CEO of global realty consultancy firm DTZ India, says that the CRR cut by the RBI is definitely a step in the right direction and will improve the sentiments in the real estate community. Global financial research firm, Goldman Sachs, in its report said that through the CRR cut, the RBI has followed the sequence of easing of liquidity condition in the monetary market. This, the report says, will follow with the interest rate cut.


DTZ’s Jain says the real impact will be felt when the RBI lowers interest rates and the commercial banks, in turn, lower the lending rates on home loans. If that were to happen, it will surely bring back serious buyers and investors into play and the sector would see renewed activity. Jain also says that Noida and Greater Noida markets would benefit with a rate cut as these micro markets have a concentration of low budget housing.

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