Friday, April 25, 2014

Repo rate and its impact on bank's lending rates to home loan customers for buying property in India

Author: Sachin Gupta | Find me on Twitter

To control inflationary pressures, RBI increases repo rate. And it is quite evident from the short term and long term graphs; whenever repo rate is increased, it impacts growth of the industry. And in recent times, one can correlate the slowdown in real estate transactions with increase in repo rate.

Latest short term repo rate changes by Reserve Bank of India



History of repo rate changes by Reserve Bank of India



Whenever, repo rate is lowered it encourages individuals and companies to invest because of lower cost of borrowing.

For example, the debt on balance sheet of 11 real estate listed firms on BSE stands at Rupees 42000 Crores. Even a drop in repo rate by 1% reduces the debt servicing by Rupees 420 crores per year. That’s massive for real estate developers given that other input costs are rising.

Similarly, for a home loan seeker who has taken 50 Lacs rupees of home loan, drop in repo rate results in substantial savings on EMIs.

Loan amount – 50 lacs
Bank interest rate – 11%
Tenure – 20 years
EMI – 51609

Loan amount – 50 lacs
Bank interest rate – 10%
Tenure – 20 years
EMI – 48251

Which means, monthly savings of rupees 3358.

Therefore, just like any industry, real estate sector including the developers and customers are keeping an eye on RBI’s monetary policy and are batting for lowering of interest rates.




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6 comments:

  1. As the repo rates are increasing so the borrowing cost will also increase it and people who want loan to buy homes shall decrease this will effect the economic growth

    Raheja

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  3. Hey thanks for this amazing post. Would love to read more of such blogs. You can also have a look at home loan interest rates for more information.

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  4. This blog is very informative and interesting, the way you described the good thing of your blog and other cities where the real estate sector is booming day by day is incredible especially about the 2 BHK flat in Ayodhya Bypass road, 3 BHK flat in Ayodhya Bypass Road and 4 BHK flat in Ayodhya Bypass road which are in high demand now a days as it is one of the developing areas. of Bhopal.

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