Cut in PLR by banks unlikely to encourage house seekers

Recently both state-owned and private sector banks reduced their PLR by Rs 0.50 per cent from 0.25 per cent. This resulted in a reduction in interest rates of lending, including home loans.

But the jubilation over banks cutting prime lending rates (PLR) may not spread out to the realty market as bankers and realty firms say they are unlikely to encourage house seekers.

According to Axis Bank's (formerly known as UTI Bank) Senior Vice-President Sujan Sinha the cut in PLR is not going to affect the property prices in India.

"Axis and most other banks cover borrowers with minimum net income of Rs 7,500. But then, comparing the sky-high property prices, especially in metros, it is like a drop in the ocean, which hardly makes any ripple or difference to middle-class consumers," Sinha said.

Expressing similar views, major Mumbai realty firm Nahar Group's senior vice-chairperson Manju Yagnik said: "In order to bring a visible and ostensible change in the real estate prices, the banks will have to slash interest rates further."

She added, "With home loans dipping, we are adopting a wait-and-watch policy especially with the budget just round the corner. There will be no immediate effect on the property prices".

"No doubt there will be a small correction in the real estate prices but then this will be more due to the falling market and economic slow down," Yagnik pointed out.

According to the Managing Director of real estate firm Marathon Group, Mayur Shah, the downward revision of PLR was "in no way going to affect the real estate prices".

He said, "It all depends on the cost of land and cost of construction”.

Shah specified that the positive impact of the rate cut can be seen on the consumers who were earlier shying away from taking loans, fearing the hike in interest rates of home loans to continue.

Union Bank of India slashed interest rates across the board last week, the chairman of the bank M V Nair, said, "We have acted on the general feeling that interest rate should come down."

"We are convinced that this was the appropriate time as the depository and lending rates needed some correction," he said, adding that he was hopeful that the rate cuts "would certainly benefit and attract the middle class".

Meanwhile it seems some other leading private banks do not appear to be in any mood to bring down their PLRs, at least not till the budget.