Impact of repo rate hike on the realty sector
by Finway FSC Empowering People FinanciallyThe
Reserve Bank of India (RBI’s) decision to hike the repo rate by 0.25 basis
points again within a time span of two months has cast a negative spree over
the whole realty sector. This resulted in financial institutions hiking the
home loan EMI’s thereby making the dream of owning a home dearer to the buyers.
Unfortunately, along with the buyers, the potential increase in interest rates
will severely hit the interests of builders and other real estate players, too.
Most of the real estate experts suggest that this would lead to housing sales
velocity hitting a new low and a delayed patch of revival for the already
sluggish sector which was previously disrupted hard by the implementation of
demonetization and GST in the nation. However, the time for the industry
players is not to stand still and weep but to take the situation boldly and
dedicatedly work towards delivering lucrative deals on the table to bring back
the serious end-user demand in the market which isn’t deterred even by the
marginal now-and-then hikes.
Monetary Policy
Even
though the customers and the builders are complaining against such a prompt
rise in repo rate by RBI, there are justifiable reasons for the RBI to continue
with their contractionary monetary policy. From 2011 until 2018, Consumer Price
Index (CPI) in India averaged to the 116.25 index point’s mark, with an
all-time high of 138.60 index points in June 2018 and a record low of 86.81
index points in February 2011. Wholesale Price Index (WPI) in India also spiked
up by 5.77 per cent as compared to the year-on-year basis in June of 2018. The
wholesale inflation bandwidth in the aforementioned time duration is said to be
the highest ever since March 2017, after a 4.43 per cent gain in the prior
month and above market estimates of 4.93 per cent. The hefty rise in prices was
mainly due to food and fuel inflation, but apart from that other core category
like housing, clothing, education, etc. also led to the rise due to higher private
consumption expenditure.
The
fuel prices have shown some fluctuations, butstill remained above the Rs.70
mark which is projected to stay the same or even go up higher by the experts
due to geological, international markets and global political scenarios. Mainly
the crude oil price hike was triggered on May 8, 2018, with US President Donald
Trump withdrawing their nuclear deal with Iran. Moreover, Venezuela’s economic
and political instability and the recent deterioration in oil supplies have led
to the increase in oil price. As India imports significantly from Iran and
Venezuela, the developments affect the oil prices and import bill of the
country. Overall, the continuation of rate hike pattern is to control the
imbalance in the economy caused by the inflation and its severely agitated
determinants.
Prudent Realty Decisions are the necessity of
time
While
the repo rate hike might have deterred the customers from dreaming the home of
their own, but the condition doesn’t seem to be improving until 2022 and
delaying the idea of realty investments will do no good for them. Better than
delaying, it’s advised to indulge in a detailed market research, closely work
on cutting the investment costs, and make them favorable to your realty needs
as much as possible. Although it seems
to be tough, a prudent decision taken on- time will reap many great benefits
from the investments once made in the real estates. Here are some precautionary
measures to be careful about while opting for a home loan from the market:
1. Eligibility Criterion: The loan amount to be sanctioned is derived
from the customer’s current income and previous track records of loans and
credit card dues. Generally, the financial institutions provide 80 per cent of
the value of the property as the loan amount, subject to
your income. But the income criterion at times doesn’t involve some of the
salary slip heads while calculating the net monthly income of the borrowers,
only the income heads that can be utilized to repay the loan are considered. This
is the reason why the borrowers generally witness a difference in the
eligibility amount as quoted on the website and as realized once the
application gets processed.
2. CIBIL Score favorability: Another important factor that will highly
influence the loan decisions is the individual’s creditworthiness as provided
by Credit Information Bureau (India) Limited (CIBIL) provides a credit score on
a scale of 300 to 900 based on your previous loaning, borrowing and credit
activities. It is inclusive of all the transactions related to the individuals
like credit card usage, how the bank accounts are managed, check bounces (if
any), existing loans, loan repayments, credit card and loan applications and
many more. A score above the 700 mark is more likely to get a home loan, but
one has to be careful while applying for the loan as the more times one applies
for the same loan in varied places, CIBIL considers it as credit hungry
situation and minimizes the chances of getting a loan.
3. Interest types: Before finalizing a loan, the borrowers need
to be sure about the interest rates they are opting for as the interest rate
type one chooses highly impacts the monthly EMIs which he has to pay. If one
goes for the fixed rate personal loan in
Delhi, then the EMIs won’t vary over the loan tenure but in the floating
interest rates, the rate fluctuates and is determined on the basis of
prevailing base rates plus a floating rate. Fixed rates should be preferred
when the interest rates are expected to rise in the future and in case of
interest rate fall predictions, it is better to go with the floating ones.
4. Loan Tenure: The EMI calculations involve three main
headers of the loan—amount, interest rate and the loan tenure. In case of loan
tenure, the EMIs are inversely proportional to them, i.e., the longer the
tenure gets the lower the EMI falls and the shorter the tenure gets, and more
rise is witnessed in the EMIs. But in case of total interest paid, the loan
tenure shares a directly proportional relation with it, i.e., the higher the
tenure, the higher the total interest paid, and vice-versa. Hence, it is
advised to carefully assess the impact of EMI payments on the monthly finances
before making the final decision about the loan tenure.
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Created on Oct 20th 2018 00:34. Viewed 459 times.