Real Estate Industry Expects Deep Repo Rate Cut of Up To 100 Basis Points

New Delhi: With the prospects economic slowdown staring at our faces, the Monetary Policy Committee (MPC) in its meeting scheduled tomorrow is widely expected to give a booster shot to the economy and cut the Repo Rate drastically. 

A deep Repo Rate cut will also signals government’s and central bank’s resolve to check the falling consumer sentiment.

The real estate industry, which has been suffering from dwindling sales for a number of years now, is keeping its fingers crossed and hoping there will be significant rate cut by the MPC.

“We feel that a significant rate cut of 100 bps or more is the need of the hour. Such strong steps are not unheard of and were resorted to during the 2008 financial crisis. A 100 bps rate cut will most likely translate into the strong kickstart that the Indian economy now needs and help revive the market sentiment,” said Shishir Baijal – Chairman & Managing Director, Knight Frank India.

While a policy rate cut is definitely required to ease liquidity in the economy, specific measures need to be taken for infusing liquidity in the real estate sector. Unlike the financial market, the impact of a rate cut on the housing market is realized with a time lag and is in fact statistically insignificant in case of expected rate cuts, added.

Other industry players have echoed the sentiment. Anuj Puri, Chairman, ANAROCK Property Consultants feels that a massive rate cut of at least 50 bps in the upcoming monetary policy could be meaningful since a cut of such magnitude would make it feasible for commercial banks to lower the interest rate substantially. 

“At the end of the day, only significant transmission of a repo rate cut can help revive much-needed consumer demand. Real estate is a highly cost-intensive investment and demand for it will only pick up if the cut is deep enough to result in significant cost savings on home loans. Over and above, even if a cut in the repo rate happens, banks will need to percolate it down to borrowers,” he said.  

Ramesh Nair, CEO & Country Head, JLL India, expects the RBI to reduce the key policy rate by 25 bps for the fourth consecutive time in the upcoming monetary policy review. 

“The US Fed rate cut for the first time post the global financial crisis and the fiscal discipline shown in the Union Budget 2019-20 will most likely act as the stimulus, with the latter giving the RBI enough elbow room t o bring down the rate. This rate cut will have a direct impact on the real estate sector, provided the banks, in turn, transmit the same by a corresponding reduction in lending rates to those seeking home loans” he said.

Anshuman Magazine, CBRE's Chairman and CEO for India, South East Asia, Middle East and Africa, is hoping for a Repo Rate cut tomorrow. “In the budget, early last month, Finance Minister Nirmala Sitharaman had expressed her commitment towards fiscal consolidation and pledged to bring down fiscal deficit to 3.34% of gross domestic product (GDP) in FY-20 from 3.37% of GDP in FY19. We expect several industries and sectors, including real estate, to pick up in the coming times and register substantial growth in the later part of the calendar year,” he said.

The Reserve Bank of India has cut the Repo Rate for three consecutive times in the last 6 months, totaling 75 basis points. However, the commercial banks have lowered the interest rates by only 5-10 basis points so far.