The critical state of the Indian real estate sector caused by the Covid-19 pandemic has left so many inventories unsold and construction of projects on halt. Loss of jobs and salary cuts has led to a shortage of property buyers in the industry. In such a challenging time, the latest announcement by the Reserve Bank of India has brought much-needed positivity to the sector.
The Reserve Bank of India comes in aid of real estate to help boost the industry
Taking into account how huge is the role of real estate in employment generation and its inter-linkages with other industries, the Reserve Bank of India has decided to rationalise the risk weights by linking them only with Loan-To-Value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022.
This initiative of RBI will result in higher credit flow to the real estate sector and make home loans cheaper, thereby benefiting the homebuyers. In the equation up till now, risk weights were linked to the size of the loan as well as the LTV ratio. LTV ratio refers to the proportion of the property value that a lender can borrow through a loan. In the latest announcement, RBI has removed the loan size from this equation which will enable banks for more room to lend to the borrowers for high-value properties.
The decision has provided relaxation to the LTV guidelines which will further encourage homebuyers. It is a much-needed push to the slow-moving real estate industry, especially to the housing sector. More importantly, the high-end properties that have been facing severe downward in terms of demand from the homebuyers will now be more accessible.
Expert opinions on RBI's move
Mr. Niranjan Hiranandani, President of NAREDCO (National Real Estate Development Council) said, "The RBI's decision to rationalise the risk weights on home loans and link them to LTV ratios will give a boost to the sector. Particularly this step would benefit borrowers of higher value loans. It would ensure that more credit is available to borrowers. This move is a much-appreciated step recognising the role of the real estate sector in generating employment and economic activity".
Mr. Manoj Gaur, MD of Gaurs Group said, "The lowering of risk weightage on home loans and linking it to LTV only will ensure more credit to customers and thereby to the sector".
Mr. Satish Magar, National President of CREDAI said, "Linking of housing loans to LTV would boost housing demand. The move to extend the co-lending scheme to non-banking financial companies (NBFCs) and housing finance companies (HFCs) may infuse additional liquidity, he said, but added that the realty sector might not get benefit due to strict due diligence norms and eligibility criteria. Now that RBI has recognized realty sector as the largest employer, it should also announce steps that are imperative and crucial for the sector's survival and then introduce measures that will aid the sector's revival".