Disappointment for Real Estate Sector over RBIs Decision

The reason

The fifth bi-monthly monetary policy review of the financial year came upon with disappointments for home buyers. The Reserve Bank of India’s decision to maintain the status quo on policy rates has cut interest rates by a cumulative 135 basis points since February

How it was taken?

This decision came as a surprise and contrary to the real sector’s expectations which has been badgered by increasing inflation and depreciation of the rupee. This direct impact on home loan rates has in turn boost demand due to the reduced repo rates as executed by the government. However, the present situation is of advantage to the large industrial sector as they can avail bulk loans at lower interest rates. Also, lower lending rates affect the price of commodities, such as real estate and vehicles and thus an increase in demand is expected.

Who benefitted?

Moneylenders are expected to pass on the benefits of the previous rate-cuts to help revive the real estate. For further growth in the economy, there is a need to reduce the borrowing cost for the customers, as this will lead to increased demands and real estate solutions. Though, the Government is expected to bring in reforms essential for boosting potential buyer sentiment. 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. Therefore this time, the RBI with the repo rate revision should bring about a rather holistic approach for land solutions.

Since there is of no rate cut on the currency, while the Market was expecting a cut of 25bps, a negative impact occurred on the rupee, rallying towards 71.85 and then 72 amid global trade unrest.

Explained well by the best

This is all very well-articulated by the chairman of one of the most reputed real estate advisory firms in India.

Mr. 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.

Hence, as real estate consulting firms in India suggest that the trajectory of the real estate sector now depends on the successive transmission of rate cuts to the end consumers thus translating into lower EMIs. Increased housing demand across segments by government incentives will create support to help bring the real estate industry back to the global forefront. However, it is evident that if the Government pitches fiscal stimulus to revive the growth in economy the real estate sector will benefit. Therefore it is now significant that banks facilitate a faster transmission of these rate cuts to ensure that the benefits reaped.

Source: Economic Times

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