By: Ravi Sinha
Track2Realty: It has been a marginal rate cut that may not have any significant affect on the fortunes of the economy in general and real estate in particular. However, the sector believes it still goes a long way in improving the sentiments of the market by and large. On Friday, May 3, the Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points, for the third time since January as growth slows and inflation ebbs. RBI says there is little room to ease monetary policy further.
The RBI cuts the repo rate to 7.25 percent, its lowest since May 2011, and kept the cash reserve ratio (CRR) for banks unchanged at 4 percent, also in line with expectations. However, it warned that the risk of inflationary pressure persists despite a recent sharp decline in wholesale price index (WPI) inflation, and said a high current account deficit poses the biggest risk ‘by far’ to the Indian economy.
“The balance of risks stemming from the Reserve Bank’s assessment of the growth-inflation dynamic yields little space for further monetary easing,” RBI Governor Duvvuri Subbarao says in the policy statement.
Realty body CREDAI welcomes what it calls consistency in rate reduction along with caveat of more rate cuts and pleas for special RBI policy on national housing. CREDAI Chairman Lalit Kumar Jain stressed the need for the RBI formulating a special policy for the housing industry with focus on affordable housing and quick and equally affordable financing of such projects.
“We sincerely hope that the RBI will keep up the trend of repo rate cut and facilitate a fall in interest rates so that the EMI burden on common house buyer gets reduced considerably,” says Jain.
Rating agency CRISIL says this move was warranted, given the easing inflationary risks and weaker-than-anticipated demand pressures. It categorically says lower repo rates would help lift consumption demand only if lending rates come down. In 2012-13 despite a 1.0 percent cut in repo rate, lending rates came down by a much lower magnitude. Moreover, lower interest rates can revive investments only if other issues such as delays in land acquisition, forest & environmental clearances, and insufficient supply of raw materials, are resolved. In the absence of these supportive measures, the ability of lower interest rates to revive the economy is limited.
MCHI-CREDAI has also welcomed the RBI’s decision to slash Repo Rate by 25 basis points. However, it is disappointed with the central bank’s move to keep CRR unchanged. Paras Gundecha, President, MCHI-CREDAI says they expect banks to pass on the repo rate cut to end users at the earliest.
“Reduction in repo rate will help boost home buyer sentiment and ultimately revive the sagging real estate market in the country. However, the RBI’s decision to keep CRR unchanged will negatively affect the developers. It was the need of the hour to infuse liquidity in the cash-starved real estate industry. Reduction in CRR would also have helped in the revival of the economy of the country,” says Gundecha.
Pankaj Bansal, Director, M3M India says given the overall domestic and global economic scenario, the 0.25 % reduction in the repo rate announced by the RBI is a cautious but welcome balancing act.
“This should result in lowering the cost of borrowing across all sectors of the industry. Should this result in a drop in housing loan interest rates, it will help revive demand for the real estate industry. We look forward to more demand stimulating measures that will address the complex issues of supply side constraints and thus help in keeping inflation under check,” says Bansal.
Manju Yagnik, Vice Chairperson, Nahar Group says RBI’s decision to cut repo rate by 25 basis points to 7.25 per cent from 7.50 per cent today is good news for real estate sector. According to her, the rate cut announced by the central bank ahead of the most auspicious Akshay Tritiya festival is likely to cheer the home buyers.
“There has been huge demand for homes in Mumbai Metropolitan Region (MMR). We have seen an encouraging response for the recently concluded MCHI CREDAI property 2013, India’s largest property exhibition held in Mumbai. We are sure that home buyers will speed up their decision of buying their dream home in this most positive spell after the rate cut,” says Yagnik.
Samir Jasuja, Founder & CEO, PropEquity also welcomes the repo rate cut but says the real estate sector requires larger cuts in the repo rate and hopes RBI continues monetary easing in the coming months.
The current rate cut has for the time being definitely cheered the realty and the market, even though any significant change does not seem to be on the cards.
