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The central bank’s moratorium extension and repo rate cuts likely to increase liquidity in the real estate sector

The central bank’s moratorium extension and repo rate cuts likely to increase liquidity in the real estate sector

The recent decision of the central bank (RBI) to lower repo rate by 40 basis points (bps) to 4 percent to mitigate the impact of coronavirus crisis on the economy is well greeted by real estate leaders and other stakeholders. They even extended loan moratorium by another three months till August 2020, to provide big relief to loan borrowers.

Repo rate is the benchmark lending rate at which Reserve Bank of India lends money to commercial banks in the case of shortfall of liquidity. This is the second time in a month that the central bank has slashed the repo rate to infuse liquidity in the banking system. The reduction in repo rate will help lending institutions provide additional funds access to all sectors including real estate. The repo rate pruning by the central bank will further help banks to lower home loan interest rates, which might get the attention of several fence-sitter for property buying. This monetary policy measure will help revive demand in the real estate industry which is paralyzed by the lockdown.

A total six-months loan moratorium is granted by the central bank, further decided to convert the accrued interest for the moratorium period into a term loan. It will provide immediate relief to several home loan borrowers, as they will not have to instantly repay the accumulated interest on the loan after the moratorium period ends. The move of loan moratorium extension will be extremely beneficial in lowering the burden for those who are paying EMIs or using credit cards and lower financial stress.

Several real estate experts viewing these measures as a positive development towards the revival of demand and easing of liquidity for developers. The benchmark lending rate cuts will help banks to lend even more. It will further uplift the sentiments of home buyers and realty investors and the market might witness further lower housing loan interest rates. Although, home loan interest rates have already fallen significantly last year and are currently at an all-time low averaging in the range of 7.15 percent – 7.8 percent.

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