By: Ravi Sinha
Track2Realty Exclusive
The RBI, on Tuesday, July 31, kept the repo rate or the rate at which banks borrow from RBI unchanged at 8% and also the reverse repo rate at which, the banks lend to RBI unchanged at 7%. However, it has lowered the statutory liquidity ratio (SLR) to 23% from 24% earlier. The realty sector, reeling under liquidity pressure and low demand due to high interest rate, has reacted sharply over this status quo.
Lalit Kumar Jain, Chairman & Managing Director, Kumar Urban Development and President CREDAI says no change in the credit policy has disheartened the real estate sector.
“There is once again disappointment from RBI. There was no change in the rates in previous policy announcement and the real estate sector was expecting a rate cut this time. Both, the developer community and the home buyers are unhappy with results of the policy and this will affect the already disheartened real estate sector. We don’t see any positive policies from government which will boost the real estate sector and economy as well. We keep our fingers crossed and hope the next credit policy will bring some cheer to the industry,” says Jain.
Anshuman Magazine, Chairman and Managing Director, CBRE South Asia also calls it disappointment. “The RBI’s decision to keep the rates unchanged is very disappointing. The real estate market direly needed a rate cut to boost investor sentiment. The real estate sector is the growth-engine of the nation’s economy, but it seems the sector does not figure in RBI’s policies at all. This decision will further affect the already burdened real estate sector in the country, Magazine says.”
Simon Rubinsohn, Chief Economist, RICS, however, believes it was something of a disappointment despite the lowering in the statutory liquidity ratio. Not expected to see a further reduction in interest rates at this stage, he says the tone of the comments by the RBI were decidedly cautious – with the inflation forecast revised in an upward direction and concerns raised about the medium term prospects for any improvement in the inflation trend. In particular, the RBI noted the risks stemming from structural imbalances in the economy and the adverse weather. Against this backdrop, it seems improbable that any further easing in monetary policy is likely over the coming months.
“The prospect of a softer economy coupled with little additional stimulus from the central bank suggests that the flatter trend in the commercial real estate sector, which was highlighted in the Q2 RICS Commercial Property Survey, will persist through the second half of the year with weaker occupier demand feeding through into rent levels. Meanwhile, for the residential sector prices in key centres are likely to remain generally firm; but this resilience is coming at the cost of transaction volumes. This weaker sales picture is unlikely to change until the economy gains renewed traction,” says Rubinsohn.
Paras Gundecha, President MCHI-CREDAI expressed his shock and urged for the need of Finance Ministry’s intervention.
“The RBI’s decision to keep the rates unchanged is absolutely shocking. The real estate sector is already facing difficult times, and a rate cut would have been a boon and fuelled growth. The real estate sector plays an important role in the economy of the country, but it seems the RBI does not take the real estate sector seriously at all. This will further affect the already demoralized real estate sector. The decision is not going to bring happiness among the home buyers. We feel there is a need for an intervention from the finance ministry so that the real estate sector and the economy don’t get in to depression” Says Gundecha.
Gaurav Mittal, Governing Council Member, CREDAI and Managing Director, CHD Developers says, “The Reserve Bank of India has yet again taken a cautious stance by keeping the rates unchanged. The 1% cut in SLR will not yield the desired liquidity in the market considering the economic and inflationary pressures. The growth of the productive sector especially the Real Estate sector will be fuelled only by a rate cut. We hope Reserve Bank will take cognizance of this fact and we will see a rate cut in the next policy.”
Meanwhile, the Confederation of All India Traders (CAIT) has also reacted on the monetary policy calling it nothing but a stereo type language which is not going to transform into any kind of favourable growth in Indian economy – said the Confederation of All India Traders (CAIT) today at New Delhi while reacting on the monetary policy.
CAIT National President B. C. Bhartia and Secretary General Praveen Khandelwal in a joint statement said that it was expected that RBI would take some bold steps to stimulate the growth in economy. But as usual RBI preferred to pass on the buck to govt court.
The real estate sector asserts whatever reasons that are being quoted for non-reduction in CRR are not in sync with the need of required liquidity. This is because of inflation requirement of working capital has gone up. Many major expansion of projects and infrastructure projects are being delayed because of financial crunch. Reduction in SLR by 1% may not be sufficient looking to immediately requirement of economy.
The CAIT has strongly recommended that RBI should revisit its policy of holding reduction in interest rates and also becoming a hurdle in liquidity in Indian economy. If the issue is not taken seriously it appears that Indian economy may face the fate of other economies of the world.
