The Reserve Bank of India’s move to maintain status quo on key policy rates on Tuesday was on expected lines, say real estate developers and experts, while urging banks to pass on the benefits of earlier rate cuts to consumers.
The apex bank, in its fifth bi-monthly policy review of this financial year, kept the repo rate, or the rate at which it lends to commercial banks, at 6.75% and cash reserve ratio (CRR), or the amount of funds that banks have to keep with the central bank, at 4%.
Manoj Gaur, President CREDAI NCR & MD, Gaursons India Ltd feels unchanged rates this time were along the expected lines but is hopeful that RBI will give reduction in interest rates in next policy review. “A cut in rates would have certainly reduced a descent amount of interest rates for loans thereby reducing the burden on common man’s pocket. This would have improved the market sentiments too and provided necessary impetus to buyer’s sentiments as well.”
Yash Gupta, Senior Managing Director & Country Head, Hines India Real Estate sees little headroom to cut rates in the next few months. “However, in the longer run we definitely foresee rate cuts that will boost the housing demand in India. We have seen few banks passing rate cut benefit to the home loan borrowers but we expect more banks to follow the same trend in the coming months.”
The RBI has lowered the repo rate by 125 basis points (bps) in four separate cuts this year, including the surprise larger-than-expected 50 bps reduction in September. However, the banks have not been generous enough to pass on the entire benefit of this reduction to end consumers.
RBI governor Raghuram Rajan said the banking regulator would shortly announce a methodology for determining the base rate — the minimum benchmark rate below which a bank cannot lend — a move aimed at ensuring that banks pass on policy rate cuts to borrowers.
David Walker, Managing Director, SARE Homes, said, “With the uptick in inflation in the last two months and the RBI front end loading of rate cuts last month, the chances of further rate cuts this month were remote. As less than half the 125 bps rate reduction by the RBI has been passed onto customers by banks, action by the RBI to standardize the methodology for determining base rates which all banks will move to is welcomed.”
Pradeep Jain, Chairman, Parsvnath Developers Limited said, ” It is pertinent to note that while RBI has taken steps to considerably reduce rates, the interest rate transition from banks to the consumers has been gradual. Therefore, the onus now lies on the banks to expedite this transition and pass on the benefits to the consumers.”
In real estate we do not see any dampening of spirits as a total of 125 bps cut in the rates is already done across the year and now much depends on how banks transmit the benefit to home buyers, said Shishir Baijal, Chairman & Managing Director, Knight Frank India. “Further, regardless of this cumulative cut, banks on their own should be able to transmit more benefit to the end consumers as the cost of funds is becoming cheaper with improved liquidity conditions. Factors like a relook at the pricing strategy by the developers and abiding by project completion timelines and the overall economic growth also stand crucial,” he added.
This is how other industry participants reacted to the central bank’s status quo move:
Anshuman Magazine, Chairman & MD, CBRE South Asia Pvt. Ltd
This decision was largely expected by the industry. The multiple rate cuts initiated by the RBI through the year have provided some relief to the economy and the real estate sector. While it will take some more time for the announcements to reflect at the ground level, the housing segment has seen stability and improvement in market sentiments. As we move into the New Year, we hope the RBI will continue to monitor the situation and make necessary adjustments to boost the economy.
A Didar Singh, secretary general, FICCI
We would like banks to pass on the full benefits in the form of lower lending rates for both consumers and investors. This is important for revving up overall demand in the economy, which is still far from being robust. Of particular concern is the demand in the rural areas that has weakened on account of deficient monsoons.
Devina Ghildial, managing director, South Asia, RICS
Considering the overall economic situation, earlier reductions in repo rate have consistently eased off inflationary pressure, which is visible over the last few months. However this has not really transformed in pushing up housing demand in real estate sector, which is evident from industry reports released in the last quarter. In the long run, we foresee further rate cuts which will provide necessary impetus for housing demand to grow in India. We have also seen the banks passing on the rate cut benefits to home loan borrowers and we expect this trend to continue over the next few quarters.
Motilal Oswal, CMD, Motilal Oswal Financial Services Ltd
RBI pauses to watch key developments. An opportunity to resume the rate cut would, however, be provided by Feb-16 as by then the outlook for Jan-16 inflation would be clear and financial markets is expected to stabilize too. In the meanwhile, adequate provision of liquidity could be the focus of RBI’s policy to stabilize bond rates which have so far not responded to RBI’s policy measures. The continued focus on transmission too is a welcome step that would make the accommodative stance effective.
Sanjeev Srivastva, MD, Assotech Ltd
RBI’s move to maintain the status quo on policy came as an expected move after a big rate cut in previous bi-monthly policy. From long time, RBI has been taking steps to help the economy improve and real estate sector was also benefitted with such measures. Cut in rate cut in this policy review was hardly anticipated because throughout the fiscal, interest rates have either been reduced or kept stable. In order to refrain inflation from growing, rates have been kept unchanged, but of course, any amount of rate cut would have helped realty sector which is under the recovery mode.
Prashant Tiwari, chairman, Prateek Group
Reduction in interest rates would have optimistically impacted the real estate sector and have enhanced the growth in realty sector. However the announcement came as a balance move by RBI as a decent amount of rate cuts have already been given in previous policies to stimulate growth. The lending banks need to take actions and pass on the reduced rates to loan borrowers. Keeping in mind the borrowers, lending banks should pass on the benefit at the earliest.
Pradeep Aggarwal, chairman, Signature Global
Following the surprise 50bps rate cut in September, it was expected that RBI would maintain a status quo. However, in the context of recent amendments in FDI policies a rate cut would have further boosted the sentiments and might have encouraged buyers. The real estate sector desperately needs reforms and regulations. Though the government is showing its intent to correct the measures, it needs equal backing from RBI to draft a balance between fiscal and monetary frameworks. However, as Dr. Rajan has assured relaxation in rates as per the scope, we are hopeful to see positive moves in times to come.
Ashwin Sheth, CMD, Sheth Corp Ltd.
The RBI Policy announcement keeping key policy rates unchanged at 6.75% did not meet expectations of the real estate industry. Though a balanced move, RBI could have done much more. However, the rate cut would have helped in lowering the home loan interest rates making home buying a reality for most buyers who have been eagerly waiting for the rates to cut down. This would have also helped to accelerate the growth of the real estate industry. RBI has also been cautious ahead of an expected rate increase by the US Federal Reserve, which meets in mid-December. There is a possibility that interest rates in the US might eventually go up for the first time since the global economic crisis of 2008. Keeping this in mind, RBI has played a wait and watch game.
Rajesh Prajapati, MD, Prajapati Constructions
The real estate industry is disappointed with the announcement. The industry was hoping for a marginal rate cut which was the need of the hour, even a small rate cut would have given a right signal about downward trend in interest rates and created an optimistic environment among buyers and encouraged the fence sitters to take a positive decision .
Manju Yagnik, vice chairperson, Nahar Group
The RBI Policy announcement today by Dr. Raghuram Rajan, RBI Governor keeping key policy rates unchanged at 6.75% was not as per the expectation of the real estate industry. The real estate sector was expecting a further rate cut at this stage which would have helped in improving market sentiments, bringing some respite to customers with home loans as well. Given the current property rates and stagnant market conditions a rate cut would have sent out a positive signal to home buyers and industry alike and would have given the much needed thrust to the realty sector.
Navin Makhija, Managing Director, Wadhwa Group
Being a giant in the real estate sector, we were expecting a few changes in the policy. However, we respect this decision of the RBI. We are hopeful that this decision of keeping the repo rate unchanged will enhance the purchasing power of the buyer, especially the fence sitters. This will not only help developers initiate more projects at favorable capital but also create wider offerings benefiting home buyers.
Manoj Paliwal, CFO, Omkar Realtors & Developers
The apex bank RBI should ensure that housing loans become more affordable in order to bring the needed momentum in the real estate sector in India. It has brought down the rates understanding the market conditions when required. With no changes in Repo Rates and CRR this time which is tune with the present inflation and growth rate being under control, RBI will surely use its scissors to cut rates in the forthcoming reviews.
Rohit Poddar, Managing Director, Poddar Developers
The sector of value housing was eagerly looking forward to this upcoming repo rate cut. Understanding the problem of inflation, this move was expected to benefit the sector of affordable housing thus ensuring easy purchase of the properties. The sheer unchanged news is upsetting but we hope that it is short-lived considering the current scenario of the real estate sector.
Srinivasan Gopalan, CEO, Ozone Group
This announcement is not going to affect the real estate sector very much as nothing has significantly changed this time. I welcome the decision that RBI has taken and hope to see some changes that will positively affect us in the next announcement.