TMI BlogINTEREST RATE CUT TO HELP REALTY SECTORX X X X Extracts X X X X X X X X Extracts X X X X ..... INTEREST RATE CUT TO HELP REALTY SECTOR - By: - Dr. Sanjiv Agarwal - Corporate Laws / IBC / SEBI - Dated:- 7-6-2013 - - Reserve Bank of India (RBI) had in its recent credit policy cut the repo rate, the rate at which the Central Bank lends short term funds to the banks, by 25 basis points to 7.25% which is a welcome measure as it eases the pressure on bank margins and motivate the banks to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower the interest rates which of course, has a multiplier effect. This indeed is a good news for reality sector in general and for housing sector in particular as it may have the effect of lowering of interest rates directly impacting the EMI's (installments on housing loans). Those projects which are funded by bank loans will also be benefitted as their interest cost may also come down across a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll sectors. On the other hand, as margins on housing loans will also be squeezed, cost benefit may be passed on to the home loan borrowers which will induce then to buy properties. The banks which do not change or lower the base rate of interest will also benefit the new borrowers as any change in base rate would impact the existing customers. In most of the banks, the difference in interest rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e between fresh loans and existing loans could be as high as 2 or 2.5 percent and as such it becomes an important issue in deciding whether to continue with existing loan or to migrate to a new loan with same or any other financier. The Reserve Bank has also conveyed its impression in the credit policy that the housing projects are less risky hinting out at lowering of interest rates. It has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n seen that whenever softening of interest rate starts, home loans are sure to have a first cut. This would push up the demand for housing projects and the present not so buoyant real estate sector will get the desired push. With the stock (of houses / flats) starting rolling, demand will revive and both demand and supply side constraints get addressed. While the interest rate cut is welcome, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may not benefit the existing home loan borrowers as well as those who have opted for variable rate options as only the new borrowers get this benefit in view of bank's schemes. However, old / existing borrowers can switch to new account by prepaying and closing existing account which may cost them a one-time cost ranging from 0.10% to 0.50% or so but then, they would save on the new loan at a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower rate of interest, which would benefit them. It could be in some cases upto 2 percent. Banks and housing loan companies generally do not provide the new lower interest rate facility to existing loans but use such a tool to garner new business. In all fairness, it should be extended to all housing loans existing or the new ones as both contribute to the bottom line of such banks or companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a win-win situation for all country, developers, banks and the consumer. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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