Even as the real estate industry welcomed RBI’s decision to cut repo rates by 35 basis points, experts feel the growth of the sector will depend on proportional transmission of rate cuts to the end-consumer. The apex bank on Wednesday cut interest rate by a rare 35 bps, the fourth successive reduction, to a nine-year low, in an attempt to boost an economy growing at its slowest pace in nearly five years.
“It’s a good initiative. Will bring in more liquidity. But for proper effect, banks need to pass on the benefit to the end-user,” CREDAI President Satish Magar told PTI on the sidelines of NATCON conference in Tel Aviv. CREDAI chairman Jaxay Shah, however, said that the real estate industry is still waiting for one-time restructuring of loans which will enable developers to complete stalled projects.
NAREDCO National President Niranjan Hiranandani said the fourth straight cut in the benchmark repo rate will make borrowings cheaper and would help boost in demand in several sectors like real estate and auto, which have been sagging since the last several quarters.
“The industry which is facing huge challenges in terms of acute shortage of liquidity would get respite with banks now allowed to lend more to NBFC. We also hope a 35 basis point repo rate cut would lead to credit demand picking up and reviving growth. The benchmark rate is now at its lowest since April 2010,” he said.
JLL CEO and Country Head Ramesh Nair said the rate cut has a direct bearing on the realty sector considering that residential sales rely to a large extent on the availability of credit in the form of home loans and buyer sentiments. “However, the growth shall also depend on whether there is a proportional transmission of rate cuts to the end consumer,” he said.
Property consultant Anarock’s Chairman Anuj Puri opined that this rate cut is meant to boost consumer sentiments once commercial banks transmit the benefits to actual consumers. “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,” Puri added. Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE said the repo rate cut 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,” he added. Knight Frank CMD Shishir Baijal said that in light of the present economic distress in the country, 35 bps cut is a welcome move, however, we would have expected to see a more substantial cut is the need of the hour for its effective transmission to end-users.
“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,” he said adding that more needs to be done to provide a liquidity stimulus to the broader real estate spectrum. As the threat of a slowdown looms large on the Indian economy, Baijal said, “strong measures such as substantial rate cuts and meaningful sector-specific policies need to be taken.”
Commenting on the rate cut, Tata Realty and Infrastructure MD and CEO Sanjay Dutt said the move highlights on government’s efforts to improve liquidity and consumption pattern in the Indian economy, and boost growth from a five-year low. “We are hopeful that the festive season would bring in more cheers with strong demand revival and improved investor interests,” he added.
Echoing similar views Omaxe CEO Mohit Goel said that 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,” he said. PropTiger Group CEO Dhruv Agarwala said lower interest rates along with the higher tax deduction on home loan interest payments that were announced in the Budget in July, would encourage homebuyers to take out home loans to buy property.
Sunteck Realty CMD Kamal Khetan said the RBI’s recognition of loans up to Rs 20 lakh as priority sector lending (PSL) would provide support to boost the affordable housing segment. “We hope that the benefits are passed on to end-consumer for home loans by the banks, making it easier for them to make their purchase decisions,” he said.