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RBI must look at the real estate sector with new optimism

The Reserve Bank of India today concluded the third bi-monthly monetary policy review for the current financial year.  Contrary to market expectations, RBI Governor Raghuram Rajan, known for going by instinct and offer surprises, preferred to sail smoothly in the last lap of his tenure at RBI. He kept the key rates unchanged.


Santosh Sinha

The industry expected a rate cut. Monsoon too, so far, has been favourable this time. In the last review when RBI had acted similarly, it was predicted that Raghuram Rajan had planned some ‘Good Bye’ surprises and would cut repo rate by at least 50bps. Going by the current market scenario, there is still some vacuum. Real estate sector in particular, was very hopeful of a rate cut. It is struggling to generate sales and is over-burdened with piling inventories. A rate cut now would have helped it convince buyers and boost sales.

Moreover, with GST clearing all the hurdles to reform the taxation policies, coupled with a rate cut, it would have further boosted the market sentiments.

Here’s what the industry shared about the unchanged repo rate:

Vineet Relia, Managing Director, SARE Homes

“RBI Governor Raghuram Rajan’s decision to hold the repo rate steady at 6.5% is along expected lines. This being his last policy pronouncement, many sectors, including real estate, were hoping he would pull a surprise by announcing a modest cut, but rising inflationary trends in recent months pre-empted such a possibility. Nevertheless, given the Government’s goal of pegging inflation at around 4% within five years, this seems best, particularly since retail inflation is presently at a two-year high.”

VP Mahendru, CMD, EON Electric

“The RBI was expected to adopt a status quo on policy rates in its latest review of the monetary policy owing to inflationary pressures. Over the last three months, inflation has been on the higher side and hence there was limited headroom for further rate cuts. However, a rate cut would have definitely helped in sustaining the progressive performance in manufacturing which has reached a four-month high in July as per the latest PMI data. A rate cut would have improved liquidity in the economy and spurred demand leading to sustained economic growth.”

Amit Modi , Director ABA CORP

“RBI as well as the Developers have done their part, the banks on the other hand have not been generous enough to pass on the entire benefit of this reduction to end consumers. Hence, it is an expected move taken by the RBI Governor to keep repo rates unchanged as the Reserve Bank of India has cut key policy rates by 1.5 percentage points since January 2015 to signal lower interest rates in the economy, but home loan borrowers have got only around one-third of the benefit. We sincerely hope that both Finance Ministry as well as the RBI push all the Banks to transfer the entire benefit to the end consumer for whose benefit it is meant, else these moves will severely stop short of benefiting the consumer and only help in buffering the bottom lines of the banks.”

Aman Agarwal,  Director, KV Developers

“RBI keeping the status quo is in line with the inflationary pressure and achieving sustainable growth on the economy. RBI in past has taken considerable steps to infuse liquidity in the market however the banks have not passed on the benefits of rate cuts to home buyers. We expect RBI to relax its monetary policies in near future to boost sentiments and ease the burden of EMIs on customers”.

Anshuman Magazine, CBRE, Chairman, India and South East Asia,

“The RBI’s latest bi-monthly monetary policy review is in line with industry expectations—with the Repo rate, CRR, and inflation targets remaining unchanged. Inflation, however, remains a concern for the Central Bank. As banks have just modestly passed on the RBI’s previous rate cut benefits to consumers till date, the real estate industry had expected some amount of further monetary easing that could have helped rejuvenate housing sales. Nonetheless, we are confident that the Government will continue to promote structural reforms such as the GST, while working towards reviving the residential real estate segment.”

Ashwin Sheth, CMD, Sheth Corp,

“Though a balanced move, RBI could have done much more. However, the rate cut would have helped in lowering the home loan interest rates making home buying a reality for most buyers who have been eagerly waiting for the rates to cut down. This would have also helped to accelerate the growth of the real estate industry.” Risks to the March 2017 target of 5 per cent for headline inflation continue to be on upside on factors like food inflation, services and the effect of the seventh pay panel implementation to government employees. The strong sowing and the positive progress of the monsoon augurs well for the food inflation. Though timely implementation of GST will be a challenge, GST will help raise returns on investment across economy. Keeping these things in mind, RBI has played a wait and watch game.“RBI must look at the real estate sector with new optimism.”

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