RBI’s rate cut cheers realty agents

Today’s (Tuesday 4 October) 0.25% base rate cut to 6.25% by the Reserve Bank of India (RBI) has been welcomed by leading real estate agents.

Anuj Puri, Chairman & Country Head, from JLL India, says, “This rate cut delivery has happened for the second time in the current financial year, although after one round of rate cut in April, the current one is delivered after no change in the June and August policies. This shows that the central bank remains cautious in its monetary policies and is carefully monitoring the overall economic scenario before taking steps.

“The first question that arises after this rate cut is, of course, how it will help improve buyer sentiment in the housing sector. The reason why housing sales have been sluggish is because of trust deficit between consumers and developers.

“Unless the Real Estate (Regulation and Development) Act (RERA) and other pro-consumer policies come into play, buyers will continue to be wary. Therefore, we can expect only a marginal improvement in sentiment on the back of this rate cut. At this point, there is also no ready answer to the question of to what extent banks will actually pass on the benefit of the rate cut to borrowers.

“From a larger viewpoint – globally, risk to inflation is on the upside as rising global liquidity could result in firming up of commodity and fuel prices, especially at a time when OPEC is contemplating a cut in oil production to cap further fall in crude prices.”

For the construction sector, great relief is expected as steel and cement production has been robust as seen from latest industry production data and the pressure of rising costs that haunted developers earlier may not be a major issue in the near-term, says JLL.

But the effects of the 7th pay commission revision on house rents needs to be monitored further to ascertain its impact on the housing rents.

“A further rate cut, the low-cost pressures on the construction industry and gradual revival of sentiments augur well for the real estate sector,” Mr Purj concludes. “However, for sentiments to witness a turnaround, stakeholders would continue to expect a sustained strengthening of the economic situation. RBI’s expectation of a 7.6% growth in the gross value addition is a positive one.”

Shishir Baijal, Chairman & Managing Director, Knight Frank India, also believes the move will help the property market, if the rate cut benefit is passed on.

“A 25 bps cut in policy rate is encouraging and signals well for the real estate sector. We do hope that the transmission of the rate cut is efficient and banks pass on the benefit to the customers in similar magnitude.”

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