The last two months of 2016 created much of a topsy-turvy situation for the country. Surprise demonetization by PM Modi left the entire nation in utter confusion as to what would be the consequences, especially for the real estate sector. And now that the wave has started subsiding and things are slowly coming back to normality, positive effects of demonetization on real estate can be seen already.
Much as predicted, home loan rates have been drastically cut down by major banks like SBI, Union Bank of India, PNB, State Bank of Travancore, IDBI Bank and Indian Overseas Bank. Home loan is expected to become cheapest over the last 6 years, as other banks will follow suit. SBI, being the largest lender, largely affects the lending scenario. It has cut down the effective rate from 9.10% to 8.6%.
Home loans are linked to the benchmark known as Marginal Cost of Lending Rate (MCLR). Since home loans are linked to one year MCLR, rates are locked for 12 months. New borrowers will get the loans at cheaper rates while the old borrowers can get benefits only after their one-year lock period ends.
SBI cut its MCLR from 8.9% to 8%, it kept the spread above MCLR at 60 basis points, against 20 basis points earlier. So, loans above 75 lacs can now be taken at an interest rate of 8.6% as against the earlier 9.1%. Private sector banks will also cut the rate eventually.
With such rate slash, Modi’s dream of affordable housing in the country seems to transform into reality. PM Modi also announced that loans will be available at a little over 4% for borrowers seeking loans of up to Rs 9 lakh, under the affordable housing scheme. Banks also expect interest subvention on loan for home extension, affordable homes and small enterprises.
Experts say that the impact of demonetization will be seen on the lending sector and the entire economy during the first quarter of 2018. Government is also encouraging small lending through market related programmes. NBFCs are also looking forward to a better scenario. When EMI cheques will be smaller than rents, more people will be encouraged to own the home of their dreams.
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