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RBI Repo Rate Cut: A Significant Boost Ahead Of The Festive Season For The Real Estate Sector

With this rate cut, the real estate developers expect to boost their sales in the upcoming quarter, provided the respective banks pass on the benefits to the end consumers before that.

RBI Repo Rate Cut: A Significant Boost Ahead Of The Festive Season For The Real Estate Sector

by Santosh Sinha

The real estate industry welcomes the decision by the Reserve Bank of India to cut the Repo Rate by 35bps, 4th consecutive rate cut in the year 2019. And why not, the sector is about to enter the festive season. The real estate developers expect to boost their sales in the upcoming quarter, provided the respective banks pass on the benefits to the end consumers before that. Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE, describes, “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”. With this revision, the Repo Rate now stands at 5.4%.

Though some real estate experts advise the developers to cheer with a caution. As per Anuj Puri, Chairman, 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, the 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.”

Before this review, the Reserve Bank has cut the key rates thrice so far in this calendar year.  However, the impact of those rate cuts could not translate into any significant reduction in the Home Loan interest rates. Barring a few banks, none passed the benefits to the end consumers. It is this unfavorable behavior of the banks that makes the existence of NBFCs even more important. And RBI, in its today’s review, has tried to somehow revive the sentiments in the market by providing some cushion to the NBFCs. Ramesh Nair, CEO & Country Head, JLL India, explains, “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.”

Indeed, the developers, as well as homebuyers, are cheering this decision by the RBI, this step should not be seen in isolation. When coupled with the recent decision by the National Housing Bank regarding the ban on subvention schemes, this rate cut fillip appears quite weak to pull up the property sales during the upcoming festive season. More than 50% of the property sales in the last 3-4 years came from this subvention scheme. Now that this option does not exist, the real estate marketers will find it tough to sell their properties.

Nevertheless, a positive step should always be welcomed. The real estate sector welcomes this positive move by the RBI. Read below the comments from various developers where they welcome this Monetary Policy Review.

Avneesh Sood, Director, Eros Group:
“We welcome the decision of RBI to cut down the repo rate by 35 basis points to 5.4 percent; since easing the interest rate will help revive the investment cycle, especially in Real-Estate sector which is what the govt wants under its Housing for All policy. As The Indian Economy needs liquidity as fuel to power the growth engine, the recent move by RBI is expected to lift industry sentiments and boost demand for the sector through greater consumption demand as well as private investments, which will not only culminate in more launches in real estate sector, but more importantly timely project completions as well.”

Surendra Hiranandani, Chairman, and Managing Director, House of Hiranandani:
“We definitely welcome this move which will lift industry sentiments. The real estate sector has been looking forward to such initiatives to boost sales. It will support growth and ease the liquidity crunch in the economy. We hope that the current rate cut would translate into lower EMIs and help soften home loan rates and also boost sales. It will help to ease the pressure off the market by attracting buyers to invest in the real estate sector. Real estate sector is one of the few sectors which have the potential to kick start a sluggish economy. The forthcoming festive season will further boost the real estate sector.

A wave of next-gen reforms has set the stage for years of high growth for the real estate sector. Today’s rate cut of 35 bps is yet another initiative that is propelling the real estate sector on a new growth trajectory. It has been observed that, despite the reduction in repo rates by the RBI in the previous reviews, it did not have any significant impact on lending rates. Going forward, it is imperative for banks to reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move. Real estate being a highly cost-sensitive sector, demand will only pick up if the cut is substantial to result in significant cost savings. The rate reduction will also provide the much-needed stimulus to build upon the various initiatives announced by the Government recently about reviving the demand in the realty sector. This will also bring back fence-sitters who were waiting for the perfect opportunity to invest in their dream home. We are sure to see the positive upturn in the sector.

On the whole, this rate cut along with various other reforms announced recently is expected to cheer up developers as well as buyers in the real estate sector.”

Manoj Paliwal, CFO, Omkar Realtors & Developers:
“As the residential sector is already under distress with slower sales, RBI’s decision to bring down the lending rate by 35 basis points is resultant ought of concern about real estate sector growth, its performance, and outlook, and the urgency to take measures to revive growth in the real estate sector. RBI’s move will reduce the outgo in terms of EMI for the borrowers benefitting the home-buyers’ which will surely boost confidence in the segment bringing in the much-awaited momentum in sales.”

Samyak Jain, Director, Siddha Group:
“The RBI’s decision to cut the repo rate by 35 bps to 5.4% is a progressive step taken for the real estate sector. This announcement is anticipated to help reduce the home loan rates which will further encourage people to buy homes. We hope to see a significant rise in investments in the market with an uplift in sales of under constructed homes and stimulation in the affordable luxury segment. The RBI has once again played its part with the fourth rate cut this year and we hope to see the banks pass on the benefits to the homebuyers.”

Pradeep Aggarwal, Co-Founder & Chairman, Signature Global, and Chairman – ASSOCHAM National Council on Real Estate, Housing, and Urban Development:
“With RBI reducing the repo rate 4 times in a row, shows a softer stand towards lending. A few banks have passed the benefits to the customers and I am sure they will surely reduce the lending rates, though marginally, which can boost the sentiments in the market. Also with the push which the government showed towards affordable segment in the Union Budget 2019. I am sure the end-users would now be more motivated, to purchase their homes, post the repo rate cut.

Enhancing exposure limit of a bank to a single NBFCs to 20% of the Tier 1 capital of the bank from 15% earlier means banks can increase their lending to NBFCs and the limit of Priority sector lending through NBFCs has been to Rs 20 lakh from Rs 10 lakh earlier will further boost the affordable housing sector in country.”

Manoj Gaur, MD, Gaurs Group & Chairman, Affordable Housing Committee, CREDAI:
“The repo rate cut by 35 basis points to 5.4 percent is a constructive move for the real estate sector. With the fourth consecutive rate cut, we expect the demand for housing to rise marginally. The rate cut is expected to further bring down interest rates on home loans and auto loans as the monetary transmission of previous policy easing have been limited. It will also help boost credit growth in the banking system.”

Mohit Goel, CEO, Omaxe Ltd.:
“With inflation well within the RBI range and economy showing signs of a slowdown, the repo rate cut of 35 bps to 5.4% is on expected lines. Despite repeated cuts in policy rates by the RBI, fourth since January 2019, commercial banks have not passed on the cut to borrowers. As a result, lending rates continue to remain high. The slowdown in the economy coupled with high lending rate has accentuated the slump in housing demand.”

Amit Modi, Director, ABA Corp & President (Elect) CREDAI Western UP:
“This is the fourth straight rate cut from the RBI and it results in an overall decline of 110 basis points or 1.1 percentage point in the key lending rate, not just that the benchmark rate is now at the lowest since April 2010, but unfortunately there is still no major effect on the ground, and this is mainly due to the fact that despite the repeated reductions, the majority of banks are not passing the benefits of the rate cuts to end consumer. Rather than making sure that consumers are offered reduced interest rates on home loans which will result in lower EMIs, there is still an ongoing tendency of cushioning the bottom lines by the banks, which ultimately turns out to be counterproductive to the move itself. The Monetary Policy Committee has once again maintained an accommodative stance; we hope that the banks are also more accommodative in their stance towards the home buyers aspirations.”

Ashish Bhutani, CEO, Bhutani Infra:
“The rate cut by 35 basis points is a positive move thus providing the required impetus to the economy of the country. The much-needed step taken by the Apex Bank aims to curb the liquidity situation. However, we expect the banks to transmit the rate cuts to the borrowers to get the desired results of this constructive move.”

Deepak Kapoor, Director, Gulshan Homz:
“The liquidity situation might see a change as RBI has enhanced exposure limit of a bank to a single NBFCs to 20% of the Tier 1 capital of the bank from 15% earlier, which will mean that banks can increase their lending to NBFCs. We hope that banks will give benefits to the buyers and there will be a reduction in EMIs. Sales, launches, and delivery will likely improve in the near future. With the festive season around the corner, the impact of the move may be visible in the upcoming months especially in the affordable and mid-segment category.”

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