The Reserve Bank of India (RBI) in its MPC meeting held on Friday kept the policy rate unchanged at 4.0%, while maintaining an accommodative stance. With consumer inflation still trending at the upper end of the apex bank’s band, and the policy repo rate also being substantially reduced by 115 basis points since February 2020, the RBI kept the rates on hold, with an eye on how the inflation and the economic recovery pan out in the coming months. Advance estimates indicate that the Indian economy may contract as much as 7.7% in FY2020-21 due to the pandemic.
“In such a scenario, one would usually expect the RBI to cut the repo rate in order to boost consumption. Certainly, the real estate industry always aspires for reduced interest rates. Housing demand is reviving, and this demand needs to be fostered. However, the RBI’s current stance is absolutely justified, given the unique circumstances. We are certain that rates will be adjusted favourably once the pandemic exigencies ease,” said Anuj Puri, Chairman, ANAROCK Property Consultants.
Developers said the decision to keep the repo rate unchanged will ensure that home loan interest rates will not harden anytime soon and continue to remain attractive. This should augur well for home buying sentiment.
However, “going further, the real estate sector still requires further relaxation in policy rates and a cut in interest rates as these measures will reduce the overall cost of buying a property, which will be a direct stimulus for homebuyers. It is quite clear that increasing interest rates would impact overall demand at a time when the government is keen to boost consumption. We are upbeat as consumer sentiment is high, especially after they witnessed the brittle nature of other investment vehicles compared to real estate. We also hope that the government looks into specific measures to enhance ease of doing business for the developers and boost residential uptake in the upcoming months,” said Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group.
With a growth-focussed budget recently presented by the finance minister, that further supports the government’s aim of nurturing the economy, this status quo will further allow demand creation, including for high involvement products like real estate.
“As most global agencies have touted, India is expected to recover faster from the COVID-induced slowdown mostly based on the restoration of the domestic consumption – which has greatly benefitted from the benign interest rate regime and infusion of liquidity. As seen in the past few months, housing markets in the country have responded well to low home loan interest rate. Given the interlinkages of the housing market with other sectors of the economy, we believe that low interest rate for a sufficiently long period of time will help build a strong and broad-based demand momentum in the Indian real estate market,” said Shishir Baijal, Chairman & Managing Director, Knight Frank India.
Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com, said, “The decision of RBI to keep the repo rate unchanged along with accommodative stance is understandable at this juncture, although a further cut in the key rates would have given a boost to current demand uptick that we have seen recently. The measures announced by the RBI Governor today for liquidity enhancement in the economy is indeed a good step and was much required. Real estate has been badly hit during the pandemic and the recent Budget announcements and the RBI’s decision today will help the sector to cope up with markets’ uncertainties better in the near future.”
RBI measures on enhanced bank funding window for NBFCs will also benefit the stressed sectors, including real estate.
“The real estate sector has always been looking for easy liquidity, and the RBI has decided to raise it by allowing more funds to NBFCs, which would keep liquidity in the market and may also help the real estate sector. While real estate needs several measures, it is good enough to implement the announcements made in the last few months to achieve progress. We expect banks to disburse loans more quickly to ensure that the sentiment of buyers remains high,” said Uddhav Poddar, MD, Bhumika Group.
Ashish Bhutani, MD, Bhutani Infra, said, “The last significant announcement for the commercial segment was in February 2020, when the RBI allowed project loans for commercial real estate to be extended to the date of commencement of commercial operations (DCCO). The segment is in desperate need of liquidity, which also depends on the status of the priority lending, and we hope that the segment will get sufficient liquidity as the RBI said TLTRO is available for NBFCs.”
Apart from the current measures, realtors can also rely on the the initiatives previously announced by the RBI.
Ashok Gupta, CMD, Ajnara India, said, “Backed by the growth forecast, the real estate sector can rely on the initiatives previously announced by the RBI. Over the past few months, the apex bank has taken a range of steps targeting the real estate market, such as rationalising risk-weighting criteria, connecting home loans to LTV, and reforming project-based loans. As home loan interest rates are already low, the growth curve is likely to be sustained by demand in the residential sector. With banks launching onboarding digital customers, the quicker disbursement of loans would also help the sector quickly close deals. To attract borrowers, several banks have already declared exemptions on transaction fees and other related costs.”