Real estate industry welcomes RBI’s decision to reduce repo rate
August 7, 2019
Home loans are likely to be cheaper soon as the RBI reduced repo rate by 35 basis points to 5.40 percent. This is the fourth straight rate cut from the RBI. Here is what the real estate industry said:
Niranjan Hiranandani, Senior Vice President, ASSOCHAM and National President- NAREDCO
The fourth straight cut in the benchmark repo rate is a welcome step which will make borrowings cheaper and would help boost in demand in several sectors like real estate and auto which has been sagging since last several quarters. It would also help in bringing about some balance between growth and inflation. We believe that the credit policy announcement is an extension to what was already initiated by the central government in the Union Budget 2019-20 for giving fiscal stimulus to NBFCs.
The industry which is facing huge challenge in terms acute shortage of liquidity would get respite with banks now allowed to lend more to Non-Banking financial companies (NBFC).
As the RBI Governor said, 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. If bank are able to pass on this reduction in the prime lending rate to consumers, budget housing demand may also improve further. The rate cut aims to encourage consumer spending in a scenario which has been rather gloomy, given the economic slowdown and declining consumption. To help NBFCs, the Reserve Bank of India has announced harmonization of single counter party exposure limit for banks’ exposure to single NBFCs with the general single counter party exposure limit. Under the revised guidelines, banks can now take exposure of 20% of their Tier-I capital in one NBFC from 15%. NBFCs can now on-lend to the priority sector through banks.
Mayur Shah, Managing Director, Marathon group & Former Chairman MCHI CREDAI
The Reserve Bank of India (RBI) announcing another repo rate cut by 35 basis points (bps) is good news for borrowers, especially in light of the sluggish economy. This is also a very comforting for the market and the overall economic activities. Construction activities showed slackness, with contraction in cement production and slower growth in finished steel consumption in June month. The reduction in the repo rate is expected toboost the sentiments of the developers as well as customers. After the expected tax reduction in GST, the further cut in the repo rate is yet another positive step for the real estate sector. Overall, this is going to have a positive impact on the housing market and we expect sales and launches to gain further momentum in the current financial year. RBI’s fourth consecutive rate cut augurs well for the economy and the apex bank needs to ensure that banks pass the benefits to the customers which will finally reflect sales picking up in the current financial year.
Ramesh Nair, CEO & Country Head, JLL India
In line with the general market sentiment, the cumulative 110 bps rate cut in the last four policy reviews favours the Indian economy. The rate cut of 35 bps delivered by the RBI is likely to bring in a balance between growth and inflation. Riding along the same track, the real estate sector too will gain momentum owing to favorable policy reforms. However, the growth shall also depend on whether there is a proportional transmission of rate cuts to the end consumer.
The rate cut has a direct bearing on the real estate sector considering that residential sales rely to a large extent on the availability of credit in the form of home loans and buyer sentiment. The improved market sentiments due to the tax deduction schemes, modified tenancy laws, focus on implementation of PMAY, investment in infrastructure announced in the Union Budget 2019-20 coupled with interest rate deductions is likely to boost sales in the residential segment. Moreover, credit re-structuring measures such as the introduction of repo-linked loans by select banks will positively impact the homebuyers’ purchase decisions while ensuring enhanced transparency.
The decision to cut down rates was expected owing to the ongoing liquidity crisis and muted economic growth. This said, the RBI has taken the cue from the government’s Union Budget 2019-20, where it gave elbow room for fiscal stimulus to NBFCs. Additionally, the global slowdown followed by the US Fed lowering its rate provided yet another indication to the Central Bank.
The real estate sector has already registered a 22% Y-o-Y growth in sales in the first six months of 2019 as compared to the corresponding period of last year. Stable real estate prices combined with steadily rising incomes have further uplifted the homebuyers’ sentiments in the last few quarters. However, the growth trajectory of the real estate sector ultimately depends on the successive transmission of rate cuts to the end consumers.
Ashok Mohanani, Chairman, EKTA World
For the fourth time in a row, the RBI cuts the repo rate, this time by 35 basis points. The RBI has pumped lot of liquidity into the banking system which should make a clear pledge to keep the banking system glow with liquidity. While the cost of capital is headed lower, we trust future commencement will be in baby steps, motivated by lowering of inflation expectations, a global recession notwithstanding. It will definitely spur growth for the real estate sector specifically. There have been many meaningful interventions by the government and regulator which has provided a positive boost to the home buying sentiment among the potential homebuyers. Rate cuts will guarantee affordability in terms of home loans and thus lowered EMI, lower GST, tax discount for the middle class as per as interim budget. Furthermore, we are also hopeful that the financial institutions will reduce the interest rates on construction finance. All this will give some sales momentum to real estate.
Bijay Agarwal, MD, Salarpuria Sattva group
This move by RBI to cut interest rate by 35 bps will be more comforting for the market than just a rate cut. When the banks are constrained with their cost of borrowing, they will be able to lower their respective marginal cost of funds based lending rate (MCLR), which directly impacts loans. In real estate, reduction in the cost of funds means the same can be passed on to customers directly. This will encourage customers to buy properties due to reduced interest on home loans, hence increasing the purchasing power of the common man.
Manoj Gaur, MD, Gaurs Group & Chairman, Affordable Housing Committee, CREDAI
The repo rate cut by 35 basis points to 5.4 percent is a constructive move for the real estate sector. With the fourth consecutive rate cut, we expect the demand for housing to rise marginally. The rate cut is expected to further bring down interest rates on home loans and auto loans as the monetary transmission of previous policy easing have been limited. It will also help boost credit growth in the banking system.
Pradeep Aggarwal, Co-Founder & Chairman, Signature Global and Chairman – ASSOCHAM National Council on Real Estate, Housing and Urban Development
With RBI reducing the repo rate 4 times in a row, shows a softer stand towards lending. A few banks have passed the benefits to the customers and I am sure they will surely reduce the lending rates, though marginally, which can boost the sentiments in the market. Also with the push which the government showed towards affordable segment in the Union Budget 2019. I am sure end users would now be more motivated, to purchase their homes, post the repo rate cut.
Enhancing exposure limit of a bank to a single NBFCs to 20% of the Tier 1 capital of the bank from 15% earlier means banks can increase their lending to NBFCs and the limit of Priority sector lending through NBFCs has been to Rs 20 lakh from Rs 10 lakh earlier will further boost the affordable housing sector in country.
Amit Modi, Director, ABA Corp & President (Elect) CREDAI Western UP
This is the fourth straight rate cut from the RBI and it results in an overall decline of 110 basis points or 1.1 percentage point in the key lending rate, not just that the benchmark rate is now at the lowest since April 2010, but unfortunately there is still no major effect on the ground, and this is mainly due to the fact that despite the repeated reductions, the majority of banks are not passing the benefits of the rate cuts to end consumer. Rather than making sure that consumers are offered reduced interest rates on home loans which will result in lower EMIs, there is still an ongoing tendency of cushioning the bottom lines by the banks, which ultimately turns out to be counterproductive to the move itself. The Monetary Policy Committee has once again maintained an accommodative stance; we hope that the banks are also more accommodative in their stance towards the home buyers aspirations.
Deepak Kapoor, Director, Gulshan Homz
The liquidity situation might see a change as RBI has enhanced exposure limit of a bank to a single NBFCs to 20% of the Tier 1 capital of the bank from 15% earlier, which will mean that banks can increase their lending to NBFCs. We hope that banks will give the benefits to the buyers and there will be reduction in EMIs. Sales, launches and delivery will likely improve in near future. With festive season around the corner, the impact of the move may be visible in the upcoming months especially in the affordable and mid-segment category.
Prasoon Chauhan, CEO, HomeKraft
With the festive season round the corner 35 bps cut has further boosted the realty sector, especially affordable and mid-segment housing. We are confident that this will bring the more end user buyers who will not just make enquires but buy their dream homes. The frequent rate cuts have pumped liquidity in the sector, we anticipate growth of the sector at a rapid pace.
Vikas Bhasin, CMD, Saya Group
Four consecutive repo rate cuts this year is a positive outcome for the economy. Real estate sector welcomes the move by the RBI and hope that this will solve the liquidity problem and increasing EMI burden of people. The sector flourishes in a positive economic environment and the constant effort by the RBI is a clear indication that the authorities are serious towards tackling the issues that are affecting the real estate sector. For now affordable housing will get a big boost especially at a time when festival season is around. Mid-segment housing too may also witness an increase in sales but the scale of effect on sales might be a little less than the affordable segment. Peripheral towns, Tier II and Tier III might see a good response to real estate project where prices are under check and with latest rate cuts there is more likelihood of increasing affordability and hence conversion into good sales.