Rexit good news for housing market? : The Tribune India

Join Whatsapp Channel

real take

Rexit good news for housing market?

Ever since the news of the Reserve bank of India Governor Dr Raghuram Rajan’s exit from office broke out, an impression has been made out that he RBI is all set to witness a new era of low-interest regime.

Rexit good news for housing market?


Ravi Sinha

Ever since the news of the Reserve bank of India Governor Dr Raghuram Rajan’s exit from office broke out, an impression has been made out that he RBI is all set to witness a new era of low-interest regime. The real estate sector in general and the housing market in particular that has been advocating for low interest rate lending for house purchase is foreseeing the developments at the monetary policy level in its favour. The big and debatable question, however, has no clear answer — is Raghuram Rajan’s exit good news for the housing market?

Amidst the speculation that Rajan’s successor would be more liberal to the interests of the housing market and interest rate would be an indicator of that, the fact remains that fundamentals of the Indian housing market hardly supports the perception. It is true that the RBI Governor was not very sympathetic to the real estate sector. His constant advice to the developers to cut down the property prices had also not gone down well with the collective consciousness of the developers.

The RBI Governor was nevertheless more concerned with the fundamentals of the economy and its co-relation with the real estate market than the sentiments of the business of real estate. While keeping the interest rates unchanged in its last monetary policy review he had warned about the threats with macro level outlook of the Indian economy, ranging from slight rise in retail inflation to anticipated more rise in crude prices, and not so positive monsoon to overall upside risk to inflation after the implementation of 7th pay commission recommendation.    

The major stakeholders of the business are cautious in their reaction over whether Rajan’s exit is a good move for the housing market. The undertone among the majority nevertheless suggests they are happy with the possibility of a more liberal RBI Governor than the tough economist in Rajan.

Devina Ghildial, MD, South Asia – RICS maintains that there definitely has not been a freeze on lowering rates by the RBI. We have seen policy rates go down over the past several quarters, although marginally. Lending rates on the other hand have not moved much. Given the focus of the RBI to bring equilibrium in the market, it is likely that we will see policy as well as lending rates move closer to each other. 

“It is common belief that inflation drives up prices of everything, including real estate. But this is not really the case. In fact, real estate prices either fall or remain stagnant in an inflationary environment. Inflation is impacted by the cost of credit. As spending power reduces, banks recalibrate their loan interest rates upward. With the job market also being stagnant and increments not being very high, the outlay that people are willing to commit towards a home is lower at this point in time. Even if rates were to come down there are several other factors that come into play that are affecting the revival of the housing market,” says Ghilidal.

The fact remains that two weeks after he took over, Rajan stunned markets by raising interest rates, and did so twice more until early 2014, taking the repo rate to a high of 8 per cent from 7.25 per cent. Under constant pressure from the government and businessmen, he has since trimmed interest rates to a five-year low of 6.5 per cent since January 2015. However, this was far from what pressure groups wanted.

There were more reasons for Rajan to be in the bad books of many powerful and politically connected willful defaulters and oligarchs in the realty and infrastructure sector who have borrowed recklessly for stalled projects. His order of Asset Quality Review to attack crisis levels of bad loans was probably last nail in the coffin of his tenure at the RBI.

A cautious Dhaval Ajmera, Director, Ajmera Realty, says Rajan was indeed doing a good job and he was considered to be the industry’s favourite. Keeping his track record in mind, definitely there will be a temporary effect in the market but we have complete faith that the government will consider the holistic view and will take care of the current scenario. 

All in all, it will be a temporary effect and not a permanent one.“Factors like stagnant job market and inflation are very essential for the housing market as we can not deny the fact that job plays a vital role in housing decisions. We can all vouch for the fact that interest rates too play an important role in any housing decision, so definitely other factors like stagnant job market and inflation will affect the market but not to a major extent,” says Ajmera.

Contrary to what the built environment of Indian real estate would like to believe, the exit of  Rajan is definitely not a good news for the real estate market in general and housing market in particular. It may please a small section that does not wish the RBI to be hawkish in its approach and liquidate the market with lower lending rates, but in the final cost and benefit analysis that is not going to revive the housing demand. It may only help in delaying the inevitable fate of a large section of Indian real estate developers. 

— The writer is CEO, Track2Realty

Top News

Delhi High Court dismisses PIL to remove Arvind Kejriwal from CM post after arrest

Delhi High Court dismisses PIL to remove Arvind Kejriwal from CM post after arrest

The bench refuses to comment on merits of the issue, saying ...

US makes another remark on Kejriwal's arrest, reacts to freezing of Congress bank accounts

US makes another remark on Arvind Kejriwal's arrest, reacts to freezing of Congress bank accounts

We encourage fair, transparent and timely legal processes, s...

Explainer: Why BJP is flying solo in Punjab and Odisha

Explainer: Why BJP is flying solo in Punjab and Odisha

A multi-cornered contest is always advantageous for BJP; it ...


Cities

View All