Repo Rate Cut Meets With Mixed Reactions From Realty Industry
New Delhi: The Monitory Policy Committee (MPC) today slashed the Repo Rate by 35 basis points, the largest cut this year. The MPC also announced few other measures like enhancing exposure limit of a bank to a single NBFCs to 20 percent of the Tier 1 capital of the bank from 15 percent earlier.
The Repo Rate cut has met with mixed reactions from the real estate industry. While some say that it is too small a reduction to bring about any tangible benefit to the industry, other believe that the move will result in higher sales of residential property, particularly affordable housing.
Here is a look at how they reacted:
Anuj Puri, Chiarman, ANAROCK Property Consultants
For real estate, a rate cut of 35 bps is however insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities. On the other hand, demand for affordable housing, which accounted for 2.40 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives.
Even minor downward revisions in interest rates can and do make a difference in affordable housing. If banks transmit this reduction in the prime lending rate to consumers, budget housing demand may improve. Likewise, housing demand in tier 2 and tier 3 cities, where property prices are less prohibitive, may see an uptick.
However, this rate cut, even if adequately transmitted by banks, will not do much for mid-income housing in tier 1 cities where the main concern is unaffordable property prices and not interest rates.
Ramesh Nair, CEO and Country Head, JLL India
In line with the general market sentiment, the cumulative 110 bps rate cut in the last four policy reviews favours the Indian economy. The rate cut of 35 bps delivered by the RBI is likely to bring in a balance between growth and inflation. Riding along the same track, the real estate sector too will gain momentum owing to favorable policy reforms. However, the growth shall also depend on whether there is a proportional transmission of rate cuts to the end consumer.
The rate cut has a direct bearing on the real estate sector considering that residential sales rely to a large extent on the availability of credit in the form of home loans and buyer sentiment.
The decision to cut down rates was expected owing to the ongoing liquidity crisis and muted economic growth. This said, the RBI has taken the cue from the government’s Union Budget 2019-20, where it gave elbow room for fiscal stimulus to NBFCs. Additionally, the global slowdown followed by the US Fed lowering its rate provided yet another indication to the Central Bank.
Shishir Baijal, Chairman & MD, Knight Frank India
In light of the present economic distress in the country, we welcome the move to bring down REPO rate by 35 bps however, we would have really expected to see a more substantial cut is the need of the hour for its effective transmission to end users. While it is the fourth consecutive rate cut this year and is in line with RBI’s recent shift to an accommodative monetary policy stance, it may not be sufficient to give the required impetus to the stalling consumption numbers. Of the 75 bps rate cuts thus far, only up to 35 bps have been seemingly transmitted to end users and with this backdrop, another similar rate revision is not expected to trickle down much. Further, after RBI’s announcement of a shift in policy stance, markets were already expecting a 25 - bps cut from the August MPC, although the present announcement is only moderately higher than expected. On this backdrop, RBI’s 35 bps rate cut is only marginal, more so for the real estate sector. The NBFC liquidity crisis has severely choked credit availability for the industry, especially developers, as they struggle to raise even construction finance.
Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa
The Reserve Bank of India’s decision to cut the repo rate by 35 basis points is a welcome move. In a scenario where there is pressure on GDP growth, the move will spur investment and boost consumption activity in the economy. We believe that this announcement might result in a further reduction in home loan rates and will provide an impetus to the government’s initiative of affordable housing. The rate cut coupled with several existing incentives for borrowers will impact home loan rates positively and enhance consumer sentiment.
Dhruv Agarwala, Group CEO, Housing.com/Makaan.com/PropTiger.com
In line with the government’s commitment to revive growth in India’s economy, the RBI has lowered the repo rate to a record level. This should help pump-prime the overall economy and also provide the real estate sector much needed relief. Lower interest rates along with the higher tax deduction on home loan interest payments that was announced in the Budget in July, would encourage homebuyers to take out home loans to buy property. Additionally, the RBI’s move to enhance the exposure limit of a bank to a single NBFC will infuse more liquidity into the system for NBFCs, which in turn will help real estate developers who are in desperate need for capital at this point of time.