Stimulus package May Provide Long Term Benefits to Realty Sector

The real estate scenario has changed completely since the beginning of ’08. Investor sentiment has turned negative and even genuine buyers are holding on to their purchases. This is an offshoot of declining affordability levels. High home loan interest rates, coupled with reducing loan to value (LTV) ratio , have adversely impacted end users’ ability to fund their purchases. However, all’s not over yet for this sector. The government could not ignore the fact that the real estate sector is the second-largest employer in the country. As a result, the Union government’s recently announced stimulus package, coupled with Reserve Bank of India’s (RBI) efforts, are expected to change the fortunes of the domestic real estate sector, which has been struggling to survive for the past six months.

The RBI’s move of allowing banks to provide special treatment to real estate companies is likely to result in long-term benefits. The proposed cut in interest rate on housing loans to 7% from 8% can trigger a strong uptrend in sales in the residential market, particularly in the mid-income housing segment. Measures such as according priority sector lending status to low-value loans, restructuring of loans taken for commercial property, and reduction in excise duty on input materials like steel and cement are all welcome steps. These come at a time when the industry is faced with a major liquidity crunch. They will certainly prove to be advantageous for companies facing working capital shortage.

News Published Under:   Real Estate Developers |

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