RBI Eases Lending Norms: Housing Loan EMIs Set to Come Down..

In a big boost to real estate developers& property buyers, the Reserve Bank of India (RBI) on Tuesday said long-term bonds raised by banks for infrastructure & affordable housing lending will be exempted from mandatory reserve requirements.

The RBI's move comes within days of Finance Minister MR. Arun Jaitley's Budget proposal last week.

In simple terms, the RBI has done away with some of the stringent norms to incentivize banks to lend for affordable housing & infrastructure development.

Former State Bank of India (SBI) chairman Pratip Chaudhuri told NDTV that interest rates on home loans might fall by 0.4% to 0.5%  points (0.5%).

A back-of-the-envelope calculation shows that a 0.5% drop in interest rate on a Rs. 50 lakh loan for 20 years will bring down EMIs by over Rs 1,700 per month.

However, only new housing loans will qualify for cheaper interest rates, Mr. Pratip Chaudhuri said.

The RBI has also changed the definition of affordable housing to factor in rising property prices and inflation. In the 6 metros, home loans up to Rs. 50 lakh (for property valued up to Rs. 65 lakh), while in other cities, housing loans up to Rs. 40 lakh for property valued at Rs. 50 lakh will qualify as affordable housing, the central bank RBI said.

The new government's focus on housing sector has given a fresh lease of life to the real estate sector, which has been struggling under high interest rates and economic slowdown.

"Currently, borrowing rate for developers is 13%. With this development, cost of debt may reduce by at least 1.5%," brokerage Maybank says.

In his first Budget presented on Thursday, the Finance Minister had announced a proposal to raise the tax-free cap on home loan interest for self-occupied property from Rs 1.50 lakh to Rs. 2 lakh.

In other proposals related to the housing sector, Mr. Jaitley eased foreign direct investment (FDI) norms in the housing sector, which will help in bringing the much-needed capital to the sector. Mr. Jaitley had also paved the way for the stock market listing of real estate investment trusts (REITs) in a move to boost foreign investment in the property sector.

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