Real Estate Sector Disappointed; All Eyes On Budget Now

The real estate industry, particularly the housing segment has expressed its disappointment after the Reserve Bank of India (RBI decided to maintain status quo and did not announce a repo rate cut.

The Monetary Policy Committee (MPC) decided to take a pause after five consecutive rate cuts this year. MPC lowered the repo rate by 135 basis points between Feb-Oct, 2019. The GDP growth target for 2019-20 is also revised downwards from 6.1 percent to 5 percent.

The current repo rate, which is the rate at which commercial banks lend money from RBI, stands at 5.15 per cent.

A cut in repo rate is also a big booster for the large industrial sector as bulk loans can be availed at lower interest rates. The price of commodities, especially real estate and vehicles, also fall when key lending rates are slashed. A cut in repo rate means cheaper loans due to lower interest rates. The beneficiaries include consumers having home loans, car loans etc. A cut tends to boost demand for new homes and vehicles.

Impact on Real Estate

From a real estate point of view, a rate cut helps improve the overall sentiment. The expected rate cut of 25 bps would have caused home loan values to fall below 8% for first time ever. “However, it is also true that another rate cut alone would have been insufficient to stir housing sales significantly across budget categories. The previous rate cuts throughout 2019 had almost no perceptible impact on residential sales. In fact, back in 2014, even when the home loan rates were high in two digits at 10.3%, housing sales remained at peak levels, says Anuj Puri, Chairman – ANAROCK Property Consultants.

In the present scenario, only the combined effect of lower interest rates coupled with other measures such as a cut in personal taxes – reportedly being considered by the FM – can actually stimulate residential sales out of their current lethargy, says Puri.

Rajan Bandelkar – President, NAREDCO Maharashtra and Managing Director, Raunak Group says, in the past also, the advantage of the rate cut by the RBI was not passed onto the customers by a majority of the banks, which impacted the growth of the real estate sector. “In the given situation, the RBI should not just look at the repo rate revision, but instead, take a holistic approach, he adds.

Explaining a possible impact of no rate cut on the currency, Rahul Gupta, Head of Research-Currency Emkay Global Financial Services says RBI has also downgraded the FY20 growth targets. “Market was expecting a cut of 25bps. This had a negative impact on rupee, and USD/INR rallied after the policy decision. We expect prices to rally towards 71.85 and then 72 amid global trade unrest”, he adds.

Shishir Baijal, Chairman & Managing Director, Knight Frank India says RBI’s decision to not lower interest rate has come as a surprise and a bit of a disappointment to the industry. Lower interest rate would have helped push up credit demand and investment in the economy, aiding overall economic growth. It would have provided much required reprieve to some ailing sectors like real estate and auto. “RBI has probably taken the cautious approach of wait and watch to see the effect of past rate cuts and also to assess the inflation trajectory. With economic growth remaining subdued, there are still chances of a rate cut in the next meeting,” says Baijal.

Commenting on the RBI’s decision to maintain status quo, Niranjan Hiranandani President NAREDCO says, the benefit from the previous rate cuts are yet to play out completely and the real estate industry is still reeling under the liquidity crisis. “Announcement of One Time Roll Over to restructure bad loans would have been a logical step for the revival across the industries. Thus, the decision to wait and watch the outplay of previous cuts will go against the current sentiments. The markets overall are disappointed,” he adds.

Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani says the growth trajectory of the real estate sector will depend on the successive transmission of rate cuts to the end consumers and translate into lower EMIs. ” Going forward, we request the government to take necessary steps to create housing demand across segments. We look forward to the Government’s constant support to help bring the real estate industry back to global forefront. We hope to see a positive upturn in the real sector soon,” says Hiranandani.

More Required

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services says any rate cut is unlikely in the next one year. “Overall, today’s status quo increases the credibility of RBI’s inflation mandate. We had always believed that today’s cut would be the last rate cut in this cycle. We continue to maintain that there will be no more rate cuts now unless inflation falls back towards 4%,” he adds It implies that any rate cut is unlikely in the next one year”.

Abhishek Jain, Joint Managing Director, Terapact believes the economic revival may not happen only due to monetary policy too. “TheGovernment may have to pitch in with further fiscal stimulus to revive growth in the economy and real estate sector in particular. While the RBI has done its bit in the recent past, it is now critical that banks facilitate a faster transmission of these rate cuts to ensure that the measures reap results, thus strengthening private consumption and spur further investments,” Jain adds.

Kaushal Agarwal – Chairman, The Guardians Real Estate Advisory says that all eyes will be on the budget now, where a lot will be expected from the Government. “The continuity of reforms under the second term of the current Government is needed to boost home-buyer sentiment, he adds.

Sandip Somany, President, FICCI, a leading industry body says a reversal in the declining economic growth trajectory is clearly the need of the hour and all steps should be taken to bring about this change. “A cut in the policy rate was also important for boosting the sentiment in the market and amongst investors, and FICCI was hoping for a bolder action on this front. In fact, we feel that a further cut of 75 to 100 basis points in the repo rate is required in a short period of time to strengthen growth in the economy,” he adds.

“With the growth projection for the current year being revised down from 6.1% to 5%, both government and the central bank should initiate some stronger measures to break the logjam particularly in the stressed sectors of the economy. There has been some active consultation between industry and government, and we expect that between now and the next Union Budget some of the additional measures suggested by the industry will be implemented,” says Somany.