Real Estate India

Developers disappointed with RBI’s status, hope for rate cut by banks on high liquidity

Considering the current economic situation, it is disappointing that the RBI has chosen to maintain status quo on policy rates. A 25 bps was widely factored in as it would have provided some cushion from the impact of demonetization. While it is anticipated that the Fed might increase rates from December, so reducing rates here could have an inflationary effect in the medium term, we have to remember that post demonetization, the downside risks to growth has increased significantly. This coupled with sluggish credit off take over the last few months has dampened economic activity across all the sectors. There is an urgent need to focus on growth and create more jobs that will strengthen the economy. A rate cut in the February policy seems inevitable now as the Central Bank would have got better clarity by then on the impact of demonetization.

 The highlight of the policy was the withdrawal of incremental CRR that will have an immediate effect of 25 bps and provide further liquidity in the system. This will definitely help the banks to drop lending rates, thereby giving the economy, a much-needed breather. The amalgamation of lower interest rates alongside the various progressive measures taken by the government towards deregulation may revive demand in the real estate sector.

Surendra Hiranandani, Chairman & Managing Director, House of Hiranandani

Though it is unfortunate that the Central bank left all policy rates unchanged today, we are still hopeful and understand that maybe the policy makers are waiting till 31 December to see the final outcome of demonetisation post which an aggressive announcement  on rate cuts will be made sooner than later. At this point in time the confidence of the Indian public needs a boost and we are sure that the government will certainly step in to ensure that India’s growth story is not disrupted in any manner whatsoever.

Getamber Anand, President – CREDAI National

Contrary to a wider perception that the policy rate will be cut by at least 25 basis points, India’s RBI has kept the repo rate unchanged at 6.25%. However, growth outlook for the current fiscal year 2016-17 has been lowered sharply from 7.6% y/y projected earlier to 7.1% y/y at the moment.

For the real estate sector, which is currently reeling under pressure from the recently-announced demonetization of high-value currency notes, a rate cut could have definitely allayed fears of a near-term loss of momentum. That said, even before the RBI’s announcement of its policy rates today, some banks have gone ahead and announced interest rate cuts on the back of improved liquidity in the system. This gives a lot of emphasis on the fact that the demand for mid-segment housing will continue to remain strong, since the salaried class predominantly uses bank loans to finance their home purchases.

Near-term disruptions in cash-sensitive sectors such as retail, hotels and restaurants are going to transiently impact demand for commercial space, although with fresh supply of cash these problems will cease to exist. However, if house prices are affected because of weak sentiment, overall consumption could witness an impact through the wealth effect, the possibility of which is uncertain at the moment.

What could offer the real estate community some respite is if the policy committee would continue to remain accommodative and act positively on any opportunity available for rate cuts as soon as they arise going forward.

Anuj Puri, Chairman & Country Head, JLL India

RBI’s decision to keep the repo rate unchanged at 6.25% in its fifth bi-monthly monetary policy statement 2016-17 comes as a surprise. Lowering the repo rate would have provided a strong thrust to the real estate sector. Having said that, the Central Bank’s withdrawal of the incremental CRR is encouraging, as it will bring in more liquidity in the market. The committee seems to be allowing some external factors to play out fully before embarking on further policy actions and has left enough room for a larger cumulative rate cut in its next monetary policy announcement expected early next year

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

It is disappointing that the Reserve Bank Governor has left the rates unchanged.  The recent demonetization move by the Government had led to substantial liquidity in the banking system. Further,this move has led to the need for a stimulus to the economy. The stimulus could have come by way of a rate cut by the RBI. Unfortunately this has not happened and RBI has maintained a surprise status quo.

A drop in interest rates is extremely essential to aid the growth of the economy at large and also stabilize and boost the real estate sector especially since many developers are struggling with slow sales, high inventory and high debt. A rate cut would have given interim relief to the home buyers of the affordable segment thereby enabling government’s ‘Housing for All’ vision.”

Rohit Gera, Managing Director, Gera Developments & VP, CREDAI – Pune Metro

The RBI has kept the Repo Rate unchanged at a time when the market expected a 25-50 bps cut in light of the recent demonetization. In the past it has been seen that commercial banks do not completely transmit the benefits of lower Repo Rate to customers. Since 2015, the RBI has cut Repo Rate by 150 bps, while banks have transmitted only a fraction of it – a cut of 26 bps in home loans to end users. However, the impact of the recent demonetization has resulted in excess liquidity with banks as they are flush with funds.

This has prompted several banks to already reduce their term-deposit rates, which will bring down the cost of funds. Therefore, we expect commercial banks to transmit the reduced cost of funds in the form of cheaper home loan rates to customers over the next few months. The residential realty sector, which has been impacted by demonetization, would see some optimism driven by credit availability, which may result in higher number of enquiries in the coming months. The residential market will see a pick-up in demand if the availability of home loan at lower rates is accompanied by rationalization in home prices. However, the extent to which banks pass on the rate cut would determine the actual magnitude of benefit to home buyers. Going forward we expect to see a rate revision in the Jan – Mar quarter in 2017.

Anshul Jain, Managing Director, India, Cushman & Wakefield

“With inflation rate and fiscal deficit under control, there was a general sense of expectation that RBI will reduce key policy rates. A reduction could have had a positive impact for the real estate sector which is troubled by the increasing burden of development and borrowing costs. However, we are confident this decision has been accommodative of the structural reforms initiated by the Government and support it in the creation of a sustained growth for the economy that will allow us to reap its benefit.”

Vineet Relia, Managing Director – SARE Homes

It is an expected move taken by the RBI Governor to keep repo rates unchanged as the Reserve Bank of India had, reduced the repo rate by 0.25% to 6.25%. in October to signal lower interest rates in the economy. Hence RBI 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. Since now the banks are flushed with cash and don’t have to worry about reviving their bottom lines, they should now be passing the benefits of the previous rate cuts to the end consumers. It will be indeed the single biggest factor in kick starting the economic activity in this stagnant faces. Hence 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

Amit Modi, Director, ABA Corp and Vice President CREDAI Western UP.   

It is a surprise move by the RBI to not cut repo rates as realty sector was expecting a cut which may have slightly offset the impact post demonetisation announcement by the government. However, there is extreme uncertainty in the sector which has led to almost a standstill situation of sales pan India as many customers are on the fence to see how the situation pans out. As real estate sector in India is sensitive to repo rate cuts which leads to lower borrowing costs for home buyers and triggering demand, we expect rate cut in the next monetary policy review,”

Samir Jasuja, CEO and Founder at PropEquity

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