With inflation rising, the run-up to the April monetary policy has been overtaken by talk of a likely increase in either the repo rate (the rate at which the RBI lends to the banks) or Cash Reserve Ratio (the amount of funds that banks have to keep with the RBI) but what seems almost certain is that home loan rates will either remain where they are or go up further.

Deepak Parekh, Chairman, HDFC, told The Indian Express “it is most likely that there will an upward revision either in the CRR or repo rate and so the home loan rates could go up marginally.”

But there’s another area which is causing greater concern, especially among real estate players and the others involved — the Rs 20 lakh limit for priority sector lending. There’s need, they say, to revise the limit upward from Rs 20 lakh or introduce a differential limit for Tier I, II and III cities so that home buyers in larger towns too can benefit. The other way out, they suggest, is to increase the tax benefit limit of Rs 1.5 lakh for the interest component paid on a home loan.

Anuj Puri, Managing Director, Trammel Crow Meghraj, a multinational real estate consultancy, said: “There are properties within the Rs 20 lakh limit in smaller cities but home buyers in larger cities are getting little benefit from it. I think there should be differential limits based on the tier of the town — like Rs 45 lakh for Tier I, Rs 25 lakh for Tier II and Rs 15 lakh for Tier III cities. The tier classification can be based on the population of the town. Also the tax benefit limit of Rs 1.5 lakh on the interest component repaid should go up. This will bring down the post-tax interest cost for home buyers.”

... contd.