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  1. RBI status quo on repo rate disappoints real estate

RBI status quo on repo rate disappoints real estate

Hit hard by the demonetization drive and having failed to get a major push by the Budget, the real estate sector was looking towards the February 8 credit policy announcement with much hope. It was expecting the RBI to lower the repo rate, which would have helped ease the borrowing costs further.

By: | Published: February 8, 2017 5:28 PM
Union Budget 2017, Finance Minister, Arun Jaitley, affordable housing, real estate, Brotin Banerjee, Tata Housing infrastructure, GDP, economic growth Lowered interest rates just ahead of the financial year closing could have allowed the buyers to plan their future investments, and the realty sector would have benefitted the most

Hit hard by the demonetization drive and having failed to get a major push by the Budget, the real estate sector was looking towards the February 8 credit policy announcement with much hope. It was expecting the RBI to lower the repo rate, which would have helped ease the borrowing costs further. However, the sector got disappointed again as RBI governor Urjit Patel preferred to keep the key policy rate unchanged at 6.25 per cent in his third policy review.

“Looking at the current market scenario, we were anticipating a repo rate cut by at least 25 basis points as banks were already holding high liquidity and the benefit could have been passed onto the buyers. Lowered interest rates just ahead of the financial year closing could have allowed the buyers to plan their future investments, and the realty sector would have benefitted the most. But the RBI has played a wait and watch approach and might be waiting for the remonetisation drive to conclude properly and may cut the rates in April,” said Deepak Kapoor, President CREDAI-Western UP & Director, Gulshan Homz.

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Some developers even felt that expectations of the real estate sector got belied with the RBI monetary policy announcement keeping the repo rate unchanged at 6.25%. “It was expected that there will be a 25 basis points cut in the repo rate. The rate cut would have largely helped in attracting new buyers who were waiting for the rate cut. But that didn’t happen,” said Rahul Singla, Director, MAPSKO Group.

Others found the RBI decision to keep the key rate unchanged surprising. “The decision to keep the repo rate unchanged comes as a surprise. While the recent demonetization drive has brought in the necessary liquidity into the banks, lowering the repo-rate would have helped ease borrowing costs. This would have provided an added thrust to the government’s initiatives for affordable housing and fueled demand. A low inflation rate amidst slowdown in projected economic growth provided a conducive environment to reduce rates,” said Anshuman Magazine, chairman, India and South East Asia, CBRE.

Realtors say that we had pretty much entered a rate reduction cycle which was bringing back the demand for property investments in the market. “After such a populous budget, a rate cut should have been there, but the RBI has gone against the market forecasts. A rate reduction today could have allowed the realty buyers to plan property purchase as EMIs would have got eased further. Banks are still to pass on the benefits of the previous repo rate cuts and a deduction today could have escalated the matter further,” said Kushagr Ansal, Director, Ansal Housing.

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According to experts, the government borrowings had reduced to Rs 3.48 lakh crore from Rs 4.25 lakh crore as presented in the Budget, which meant that a rate reduction was quite evident. “Earlier this year, the government had provided subsidy on interest rates for the affordable housing segment and banks had also reduced the general home loan interest rates by up to 50-60 basis points. A rate cut today could have allowed the potential buyers to invest in property as the EMIs would have reduced further in the coming months. We hope that the next bi-monthly policy review observes a rate cut as it has been a neutral review for the second straight time,” observed Vikas Bhasin, MD of the Saya Group.

Some realtors, however, felt that the RBI’s decision to keep the repo rate unchanged may be the government’s policy of buying time as it is expected to be more effective after the remonetisation drive. “The banks are flush with funds and any rate cut may not have delivered the desired result. However, from the real estate perspective, it is disappointing news for the sector. After demonetization, the lowering of the interest rates would have made it easier for the home buyers. Although currently the rates are at their lowest in a few years, a further reduction would have given a further boost to the sector,” said Atul Banshal, President (finance and accounts), M3M Group.

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