Cautious RBI dashes hopes

Geetu Vaid

Wait-and-watch has been the mantra that the real estate sector has been following ever since the announcement of demonetisation of Rs 1000 and Rs 500 notes last month. With buyers, sellers, investors as well as developers all waiting for opportune time to make their move, the RBI too joined the wait-and-watch brigade by maintaining status quo on repo rates earlier this week. 

Demonetisation has brought the sector to a virtual standstill and all the stakeholders were expecting the RBI to give some jolt to the catatonic sector by announcing a repo rate cut that would lead to lowering of home loan interest rates by the banks making buyers venture in the “cleaner” residential market. But with the RBI preferring to wait and assess the impact of demonetisation better before announcing any cut in key policy rates, there was widespread disappointment in the sector. 

Expressing disappointment and surprise over the move Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “A rate cut could have been encouraging at this moment. However, it is disappointing that RBI decided against it. We were expecting a 25 bps cut, which could have given an impetus to the beleaguered real estate sector.” 

“It is a surprise move as the realty sector was expecting a cut which may have slightly offset the impact post demonetisation . There is extreme uncertainty in the sector which has led to almost a standstill situation of sales pan India as many customers are on the fence to see how the situation pans out”, said Samir Jasuja, CEO and Founder, PropEquity. 

“The RBI monetary policy announcement keeping REPO landing rates unchanged did not meet the expectations of the industry. Though it is a balanced move, RBI could have done much more. We expected a rate cut which would have helped in lowering the loan interest rates making Real Estate buying a reality for most buyers who were eagerly waiting for the rate cut,” said Rahul Singla , Director, MAPSKO.

Many saw it as another setback for the sector that has been battling slowdown for almost three years now. “This decision might drive the market away from investing in property for the next few months, until the Budget announcement offers some relief for the buyers”, said Rajesh Goyal, MD, RG Group.

“The realty sector is already under immense pressure due to negative market sentiments and lost demand. Besides this circle rates in NCR parts like Noida, Greater Noida and Ghaziabad have been increased. Also Registry charges in Noida have gone up this year. Therefore, in such a scenario, rate cut was the need of the hour to provide the much needed boost to the sector and to facilitating growth on the other hand,” said   Deepak Kapoor, President, CREDAI Western UP. 

According to the last monetary policy review of this calendar year, the first one after demonetisation, the repo rate remains unchanged at 6.25 per cent, Reverse Repo Rate under the LAF at 5.75 per cent, Statutory Liquidity Ratio (SLR) at 21.5 per cent, Cash Reserve Ratio (CRR) at 4 per cent and Marginal Standing Facility (MSF) at 6.75 per cent, respectively. 

While repo rate cut is usually seen as a first step towards lower home loan interest rates, it has not always resulted in home loans getting cheaper. Since 2015 the RBI has cut repo rates by 150 bps but the banks have not been forthcoming in transferring the benefit to home buyers. There has just been a marginal cut of 26 bps in loan rates for consumers in the past year-and-a-half. 

However, all eyes were on Wednesday’s monetary policy review as banks are now flushed with funds and there seemed to be no hurdle in the way of reduction in loan rates that would have injected some life in the residential market. “For the real estate sector, which is currently reeling under pressure from demonetisation a rate cut could have definitely allayed fears of a near-term loss of momentum”, said Anuj Puri, Chairman & Country Head, JLL India. “Rate cuts were required to spur investment.  It could have significantly impacted the revival & growth of the market at this juncture. The rate cut would have reduced the cost of funds to homebuyers as well as developers”, added Gaurav Jain, MD & CEO, Jindal Realty Pvt. Ltd. 

Putting the onus on the banks to reduce home loans now developers as well as market  experts hinted at need for some immediate measures to infuse some life in the sector. “We expect commercial banks to transmit the reduced cost of funds in the form of cheaper home loan rates to customers over the next few months,” said Anshul Jain, Managing Director, India, Cushman & Wakefield,

“Since now the banks are flushed with cash and don’t have to worry about reviving their bottom lines, they should be passing the benefits of the previous rate cuts to the end consumers. It will be indeed the single biggest factor in kick starting the economic activity in this stagnant faces. Hence we sincerely hope that both Finance Ministry as well as the RBI push all the banks to transfer the entire benefit to the end consumer for whose benefit it is meant, else these moves will severely stop short of benefiting the consumer,” said Amit Modi, Director, ABA Corp.

“The residential market will see a pick-up in demand if the availability of home loan at lower rates is accompanied by rationalisation in home prices. However, the extent to which banks pass on the rate cut would determine the actual magnitude of benefit to homebuyers”, added Jain. 

However, in spite of the disappointment and criticism, the RBI move is a measured and prudent one in view of the uncertainty on the economic front. Going forward we can expect to see a rate revision in the Jan-Mar quarter in 2017.