Real estate says rate cut welcome, but not good enough to boost housing

RBI policy, repo rate cut, Real estate, housing, affordable housing, bank, NBFC, home loan,

As widely expected, the Reserve Bank of India cut the repo rate by 35 bps to 5.4 per cent in its latest monetary policy on Wednesday. However, while the move was welcomed by almost everyone, including the real estate sector, realty experts said the rate cut was not good enough to give a boost to housing.

Industry experts said that in the backdrop of tepid consumption and a worsening slowdown in the economy, a 35 bps repo rate cut is good news. However, real estate needed a deeper rate cut of at least 50 bps to make a significant difference to both the mid-income and affordable housing segments.

“There is a massive burden of 2.17 lakh unsold homes in the mid-segment in the seven main cities, but we won’t see this reducing much because of this rate cut even if it is efficiently transmitted to consumers by banks. However, affordable housing may well see a noticeable reduction in the 2.40 lakh unsold units in this segment in these cities. This cost-sensitive segment has already received several booster shots from the government and if we add even lower home loan rates to the equation, we do have reason to hope for an uptick in affordable housing,” said Anuj Puri, Chairman, ANAROCK Property Consultants.

Global economic activity, in fact, has slowed down and India’s growth is also likely to be subdued in an environment of elevated trade tensions and geo-political uncertainty. The downward revision in GDP growth from 7% to 6.9% is an acknowledgement of the prevailing conditions. Over the past six months, the RBI has cut the repo rate by 75 basis points, followed by a 35 bps cut on Wednesday.

“While the message from the government and the Central bank is loud and clear, the sluggish pace of transmission and credit momentum indicates that rate cuts are probably not enough to revive growth. Recognising these concerns and according the highest priority to boost private investment, the RBI has gone a step ahead to address the problem on this occasion. Any rate cut is a welcome step for the real estate sector, but in addition to the signals given out in previous rate cuts, the Central bank has reinforced its intention of easing the trust deficit in the economy,” said Aashish Agarwal, Senior Director, Valuation & Advisory Services at Colliers International India.

For instance, single counter-party exposure limit for banks to a single NBFC has been raised to 20% of the Tier-I capital against the current 15%, which will allow a more balanced view of risk and liquidity for credible and well-governed players. Further, “lending to registered NBFCs for on-lending to housing under the priority sector lending has been increased to Rs 20 lakh per borrower from Rs 10 lakh at present. With liquidity available in the system, banks are more likely to respond positively to these cues and correct the deficit in transmission of rate cuts to borrowers,” added Agarwal.

Industry Take

Whatever be the case, property developers and industry experts have welcomed the rate cut by the RBI.

Dhruv Agarwala, Group CEO,, said, “In line with the government’s commitment to revive growth in India’s economy, the RBI has lowered the repo rate to a record level. This should help pump-prime the overall economy and also give the real estate sector much-needed relief. Lower interest rates along with the higher tax deduction on home loan interest payments, that was announced in the Budget in July, would encourage home buyers to take home loans to buy property. Additionally, the RBI’s move to enhance the exposure limit of a bank to a single NBFC will infuse more liquidity into the system for NBFCs, which in turn will help real estate developers who are in desperate need for capital at this point of time.”

Pradeep Aggarwal, Co-Founder & Chairman, Signature Global, and Chairman, ASSOCHAM National Council on Real Estate, Housing and Urban Development, said, “Reduction in the repo rate 4 times in a row shows the RBI’s softer stand towards lending. A few banks have already passed on the benefits to customers. Also, keeping in view the incentives the government has given to the affordable home buyers recently, I am sure end users would now be more motivated to purchase their homes, post the repo rate cut.”

Manoj Gaur, MD, Gaurs Group, & Chairman, Affordable Housing Committee, CREDAI, said, “The repo rate cut by 35 basis points to 5.4 per cent is a constructive move for the real estate sector. With the fourth consecutive rate cut, we expect the demand of 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 has been limited. It will also help boost credit growth in the banking system.”

“The 35% basis rate cut by the RBI is a positive move considering the present slowdown in the economy. It will allow banks to lower interest rates which would encourage prospective buyers – both end-users and investors – to invest in real estate. This will support various industries including real estate that seek customer loan for end-users, which in turn will provide the much-needed boost to the economy and also positively impact the sentiments surrounding the real estate sector,” said Pankaj Bansal, Director, M3M Group.

“We welcome the RBI’s decision to reduce the repo rate for the fourth consecutive time since February. It is a step in the right direction to give impetus to the investments in the country. The real estate sector is highly sensitive to interest rate movements, and hence this reduction would prove to be a great boost to homebuyers. This move will also help improve the overall sentiment around the current economic scenario in the country,” said Ashish Sarin, CEO, AlphaCorp.

However, all developers are not of the same view. They say that 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. With this, the benchmark rate is now at the lowest since April 2010, but unfortunately there is still no major effect on the ground.

“This is mainly due to the fact that despite the repeated reductions, the majority of banks are not passing on the benefits of rate cuts to end consumers. 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 banks are also more accommodative in their stance towards the home buyers aspirations,” says Amit Modi, Director, ABA Corp & President (Elect) CREDAI Western UP.


Author: Roky