In the present scenario, therefore, only the combined effect of lower interest rates coupled with other measures can actually stimulate residential sales out of their current lethargy.
In a surprise move and contrary to industry expectations, the Reserve Bank of India on Thursday kept its policy rates unchanged at 5.15%, flagging near-term upside risks to inflation and weakness in global economic activity, among others. However, the policy undertone remains accommodative and the MPC has kept the option of lowering the policy rate later.
Whatever be the case, real estate experts said that rate cuts have been insufficient to stir housing sales significantly across budget categories, more because despite the reduction in repo rates by the RBI in the previous reviews, it did not have any significant impact on lending rates.
“From a real estate point of view, rate cuts are obviously always welcome as they help improve overall sentiment. The expected rate cut of 25 bps would have caused home loan values to fall below 8% for first time ever. However, it is also true that another rate cut alone would have been insufficient to stir housing sales significantly across budget categories. The previous rate cuts throughout 2019 had almost no perceptible impact on residential sales. In fact, back in 2014, even when the home loan rates were high in two digits at 10.3%, housing sales remained at peak levels,” said Anuj Puri, Chairman, ANAROCK Property Consultants.
In the present scenario, therefore, only the combined effect of lower interest rates coupled with other measures such as a cut in personal taxes – reportedly being considered by the FM – can actually stimulate residential sales out of their current lethargy.
Dhruv Agarwala, Group CEO, Elara Technologies, said, “Under the current scenario, the RBI had little option but to maintain status quo with regard to the repo rate. With GDP growth having fallen to 5% in Q1 and further lower to 4.5% in Q2, mainly due to lower consumer demand, the ball is now in the government’s court to get the engine of the economy revved up again. It will be interesting to see what steps it announces in the coming days.”
Property developers also said that it is important for the RBI to focus on the effective transmission of rate cuts if housing sales are to increase.
Manoj Gaur, MD, Gaurs Group & Chairman, Affordable Housing Committee, CREDAI, said, “With the RBI maintaining status quo on the policy rate front, it is important to focus on improving the transmission of the past rate cuts. At 5.15%, the repo rate is very near the historical low, but it is yet to lead to any sort of revival in consumer demand. The reason being that the benefits of the past rate cuts have not been passed on the customers. Hence, it is important to focus on effective transmission.”
Sharan Bansal, Joint Secretary, CREDAI Ghaziabad, said, “The real estate industry is disheartened by the status quo maintained by the RBI today. Real estate, being an interest-sensitive sector, would have benefited from any cut in policy rates, provided the government looked after its passing down to the consumer. But, to our surprise, the RBI has maintained status quo mainly to check the rising CPI inflation. The monetary stance will adversely impact the chances of revival of the demand in the immediate period and a lot would depend on the government action going forward.”
Developrers said that by maintaining the status quo, the RBI has given some kind of surprise after a long time. “Unfortunately, it is contrary to our expectations. The whole industry was assuming a 25 bps cut. Most of the economists also had similar expectations. But it seems the inflationary expectation has outweighed growth projections. In the last few months, the government has announced certain measures to revive demand particularly for the real estate sector, like constitution of realty AIF, lowering GST on affordable housing, among others. It remains to be seen what additional measures it takes to revive the economy,” said Amit Modi, Director, ABA Corp & President (Elect), CREDAI Western UP.
Prateek Mittal, Executive Director, Sushma Group, said, “With unchanged repo rate, we expect the government to take up some fiscal measures to boost the demand and enhance customer sentiment along with passing on the benefits of the previous rate cuts to the end users.”