Is demonetization delivering cheaper homes to buyers?

Whenever there is talk about buying a home in a low and middle class household, one fact is clear. These potential home owners will turn to a bank to meet the ever increasing prices of properties. Most of our pockets are not deep enough to foot the entire cost of the property purchase. So the banks are there are to fill this gap. Home loan is the most legitimate way to get enough money to put a roof over your head.

The banks charge an interest for the principal that they lend to make the purchase. Most times buyers land up paying an interest which is nearly equal to the principal amount given to them. The home loan EMIs are a burden that the home owner has to bear. Usually the bank only gives about 80% of the total value of the project as loan and would charge your EMI based on your earning capacity.

The interest that the banks set is decided based on the repo rate that is decided by the Reserve Banks of India. The repo rate is the rate at which the RBI loans out money to all the other banks. So this key lending rate has a lot of say in whether sites for sale in Bangalore will be cheap or cost a bomb. The RBI keep revising this rate based on the economic condition of the country and the global economic climate. If the RBI for whatever reason chooses to jack up the repo rate then real estate Bangalore and any other city in the country will flounder. If it chooses to lower it then it will be great news for the sector.

The biggest complaint that the RBI has against the banks is that they do not pass down the rate cuts quickly enough to the consumers. Over the last two years this central financial entity has been slashing the rates quite a bit. But the banks for whatever reason have been slow in passing on the benefits of these cuts.

Recently the central bank chose to hold the repo rate at 6.25% though many has expected the rate to be lashed to a low of 6%. But this did not come to pass thanks to demonetization and the crude oil prices. It would be right to assume then that sites for sale in Bangalore would not become cheaper anytime soon.

But this is where one is wrong. There is still hope for real estate Bangalore to be priced lower than before. This is thanks to demonetization. The banks have seen quite a bit of cash coming into their coffers over the last few months. This has encouraged them to lower their interest rates. This in turn has made buying a home a cheaper affair. So even though the RBI has held the repo rate, homes might get cheaper for buyers. There is also more space for future interest cuts and this bodes well for home buyers.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s