RBI call to chop repo rates uplifts market sentiments

Real estate sector has been confronted with challenges like weakening demand, market volatility, lukewarm budget, high land price, high input price, among others. however finally with the reduction of fifty basis points, the important estate market has one thing to cheer regarding.

Majority of the developers foresee demand to choose up, post this call. in keeping with Ashwini Kumar, Chief Operating Officer (COO) of Bangalore-based Nitesh Estates Ltd said, “The jury continues to be out on what's an even bigger menace – inflation or slowdown of the economy. but for home patrons, the better-than-expected rate cut could be a terribly welcome event as this can improve the affordability.”

The business is looking forward to important reduction in interest rates by banks once RBI’s call to chop the repo rates by fifty basis points. in keeping with a spokesperson of Mumbai-based Hubtown cluster, “This could be a welcome step however what remains to be seen is whether or not it'll translate to important reduction of interest rate or not. For any worthwhile impact on the business, the idea points ought to be reduced by 100-150 points. With the present high value of property further of financing it, the demand is drying within the market. Unless there's a rationalization of each these factors, the comfort level of end-user won't return into the market.”

It is expected that this move can perk up the demand and indirectly facilitate the developers in disposing off the unsold stock.

According to Navin Raheja, President, NAREDCO, “This can revive the declining property, where most realtors are reporting decline in internet profits, and boost realty stocks that have eroded 80-90% from their peak. Infusion of capital to the arena can see increase in new launches and enlargement in capital expenditure plans of realtors that have declined as a result of severe liquidity crisis looming the arena. Added to the current, abolishing prepayment penalty on home loans can scale back burden of home patrons and encourage a lot of individuals to venture into property sector. Overall, there's a reason for property sector to cheer, that has been below tremendous pressure thanks to liquidity crunch and rising interest rates in last 2 years. Rate cut by RBI is predicted to enhance provide of housing and come back of home patrons within the market, however to come back to 2008 level continues to be a protracted wait.”

RBI interest rate cut positive for housing sector

Commercial Real Estate

RBI interest rate cut positive for housing sector

For the first time in three years, Reserve Bank of India (RBI) has slashed interest rates by 50 basis points to 8%. This move will reduce the home, auto and corporate loan rates. A fall in interest rates of home loans spells relief for the common man who up till now had been postponing the decision to buy property due to increased prices and high inflation.

Anuj Goel, Executive Director of KDP Infrastructure believes that this is a good move from the RBI’s side as this will improve cash flow. “As the housing loan interest rate reduces, it facilitates home seekers to buy house and ultimately it will be beneficial for real estate industry. However, the move will only benefit new borrowers while the existing borrowers will have to grapple with the old rates,” he added.

Banks should allow existing home loan customers to reduce their interest burden by allowing them to re-price their existing loans at lower rates so that borrowers can switch to prevailing floating rates that are at a discount to the prime lending rate, Goel pointed out.

Navin Raheja, President, NAREDCO & CMD, Raheja Developers is happy with the move, saying that home loan EMIs will come down resulting in a boost to residential real estate. “But, the banker’s reaction to maintain the interest rates irrespective of cut in repo rates is a cause of concern because we feel that banks should pass the rate cut to the borrowers enabling them to invest in real estate,” he said.

Sailesh Kumar, Chief Operating Officer, Lotus Infra Projects Pvt. Ltd agreed with the view, saying that keeping in view the upside risk of inflation, the RBI could not afford to cut repo rate for the last couple of years.

“It seems that growth is likely to improve supported by pick up in consumption demand. The RBI has cut the repo rate which is a welcome step for real estate sector as high interest was impacting the demand on one hand and increasing the cost of construction on the other hand increasing the cost of construction,” Kumar added.

Gaurav Mittal, Managing Director, CHD Developers Ltd said that this step is slated to be beneficial for both the buyers as well as the developers who have been struggling with cash crunch in recent times. This significant move would reduce the cost of funds to home buyers as well as developers as it will allow the banks to lower down the interest rates. “This will ensure heightened property demand in the coming times. Removal of the pre-payment penalty clause will spread cheer amongst developers and would ensure fresh loans and hence boosting the market,” he added.

Now that rates are cut, consumer demand is expected to revive and overall sentiment will also improve. It is expected that banks will reduce the home loan interest by 50 basis points which will ultimately perk up the demand and will help developers to dispose off their unsold stock, Kumar added.

Rajesh Goyal, Managing Director (MD), RG Group said that the announcement in the new credit policy to cut interest rate by 50 basis points is a move towards the right direction. It will provide much-needed boost to the sector and a relief to home buyers.

However, Om Ahuja, CEO – Residential Services, JLL India does not consider this cut to be a positive move for the housing sector. It should be borne in mind that the RBI has hiked interest rates a total of 13 times between March 2010 and October 2011. “Given the ongoing concerns over inflation and excessive liquidity on the market, this spate of rate hikes as created a compounded problem for the residential real estate sector whose effects are not easily dispelled. The series of hikes in the past have also affected the price that builders put on their properties, since their own cost of borrowing has increased. It is unlikely that property prices will come down because of this rate cut, and it is the price of properties that is the decisive factor in residential real estate sales,” he said.