With inflation levels flattening out, oil prices at a low, it might have been a good time to cut interest rates as it would have provided a much-needed upward momentum to the realty sector. There were deep hopes too for a sector that needed a little boost if only to leave its hard times behind. With key rates unchanged, have we missed out on a golden chance?
It has happened for the fifth time in a row. The Reserve Bank of India’s (RBI) reiteration of its status quoist stance by keeping interest rates unchanged in its monetary policy review has considerably dampened the rising hopes of an upbeat realty sector. To say it has not gone down well within the real estate industry would be a definite understatement although RBI Governor Raghuram Rajan during the bi-monthly exercise on December 2, did hold out hope that the rate cuts can be perhaps expected early next year.
As things stand, the repo rate, or the rate at which the central bank extends short-term loans to banks, stands at 8 per cent while the reverse repo rate is 7 per cent. The cash reserve ratio (CRR) remains at 4 per cent. Although Rajan’s move is widely in line with expectations of bankers, economists and market experts, most of the real estate players feel the Governor could have gone in for rate cuts straightaway rather than possibly waiting for early next year.
The Confederation of Real Estate Developers’ Association of India (Credai) expressed disappointment at the RBI status quo even when the inflation is already under control and there is a need to focus on fueling the housing growth by reducing the rates.
C Shekar Reddy, president, Credai, said: “The RBI decision to keep the key rates unchanged will not help the real estate sector development.” Noting that the overall inflation is well under control, crude oil prices are also low and the overall business requiring an upward momentum, he said: “A reduction in policy rates at this juncture would have a significant impact in boosting the industry and facilitating growth”.
Sachin Sandhir, Global Managing Director – Emerging Business, and MD – South Asia, RICS, admits the decision is along expected lines despite hopes in the realty sector of rate cuts as recent economic data suggests that the much-anticipated headroom for easing the policy stance is still far from being achieved. “With moderation of inflation there was an expectation of the industry that the RBI will cut interest rates in its bi-monthly monetary policy. A rate cut at this stage would have further galvanised the market sentiment and helped in growth,” said Sandhir. Rohit Raj Modi, president, Credai-NCR, said: “It is quite evident that the RBI is adopting a status quo policy. It ‘s looking towards curbing inflationary factors. However, a rate cut would have been a boon for the sector at a time when it is coming out of a not-so-good festive season.” “A mere reformatory announcement from the Government would not do much if it is not supported by monetary liberty,” Modi added. Pradeep Jain, Chairman, Parsvnath Developers Ltd., said. “RBI is only looking towards taming inflation. It is overlooking the pressure being borne by key sectors.”
RBI should understand that curbing inflation at the cost of growth is not a wise step. It should stand up and cut the rates in its next review to pump fund into the economy and the real estate sector in particular which is one of the major contributors to the GDP”.
Anand Raj, CEO of MMR Group, said: “RBI’s decision to keep the CRR, repo and reverse repo constant is a strategy to control inflation which is a long-term goal of the Government.”
“Positive vibes would have been repelled this low sentiment market if there had been changes in the rates. This would have reflected in lower home loans and liquidity for investors and builders,” he added.
According to Nikhil Jain,CEO,Ramprastha Group: “Although the real estate sector would love to see interest rates cut so as to allow for lower cost of borrowing and repayment on home loans, I think the wait won’t stretch too long before the central bank deems it fit and proper to bring down rates.”
P Sahel, Vice-Chairman, Lotus Greens Developers Pvt. Ltd, said: “The decision by the central bank to keep the CRR unchanged at 4 per cent is a sign of improvement signalling the march of economic recovery.” However,he said, “The entire developer community was expecting rate cuts easing the process of borrowing and repayment of home loans. Nevertheless, we expect that the central bank will decrease the rates further at an appropriate time thereby giving a breather to the real estate sector”.
In his reaction, David Walker, Managing Director, SARE Homes, said: “The real estate industry is looking forward to an interest rate cut as inflation has fallen significantly and the real estate market continues to be slow. A reduction in rates will give buyers reassurance that we are now on a downward trend for rates which will reduce EMis and make property purchase more affordable.”
A circumspect Tarandeep, GM, Marketing & Corp Comm, Paras Buildtech, reacted “Despite pressure from the Government,if Rajan has kept the policy rates unchanged,there must be a sound reason for that. It is always wise to give buffer time after normalisation of economic indicators.”
According to Manish Agarwal, MD, Satya Group: “Though the RBI could have gone with a slight reduction in policy rates, it seems the governor wants to completely tame the inflation rate before going all out for economic growth.
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