Realtors disappointed with RBI’s status quo, hope for rate cut by banks on high liquidity

RBI in its fifth bimonthly policy review on Wednesday surprised everyone and kept the repo rate unchanged at 6.25%.

NEW DELHI: Real estate developers and experts seem disappointed from the Reserve Bank of India‘s decision to maintain a status quo on policy rates, but are hopeful of banks cutting lending rates due to high liquidity.

RBI in its fifth bimonthly policy review on Wednesday surprised everyone and kept the repo rate unchanged at 6.25%. The central bank in its last review in October had reduced the repo rate by 25 basis points to 6.25%.

“A rate cut could have been encouraging at this moment. However, it is disappointing that RBI decided against it. We were expecting a 25 bps cut, which could have given an impetus to the beleaguered real estate sector,” said Shishir Baijal, chairman and managing director, Knight Frank India.

Amit Modi, director, ABA Corp and vice president, CREDAI Western UP, feels since now the banks are flushed with cash and don’t have to worry about reviving their bottom lines, they should now be passing the benefits of the previous rate cuts to the end consumers.

RBI also kept the cash reserve ratio unchanged at 4%, but removed the incremental cash reserve requirements that it had imposed in November from December 10. RBI had asked domestic lenders to keep all the deposits they received between September 16 and November 11 under cash reserve requirement.

While Bank of India and Bank of Baroda already lowered lending rates by 5 to 20 basis points just before the RBI policy review, State Bank of India (SBI), the country’s biggest lender, had also shown interest in lowering its lending rates if the RBI withdraws the additional CRR.

Vineet Relia, Managing Director, SARE Homes, said, “A reduction could have had a positive impact for the real estate sector which is troubled by the increasing burden of development and borrowing costs.”

Here’s how the other builders and experts reacted to the RBI’s status quo:

Surendra Hiranandani, Chairman & Managing Director, House of Hiranandani

Considering the current economic situation, it is disappointing that the RBI has chosen to maintain status quo on policy rates. A 25 bps was widely factored in as it would have provided some cushion from the impact of demonetization. While it is anticipated that the Fed might increase rates from December, so reducing rates here could have an inflationary effect in the medium term, we have to remember that post demonetization, the downside risks to growth has increased significantly. This coupled with sluggish credit off take over the last few months has dampened economic activity across all the sectors. There is an urgent need to focus on growth and create more jobs that will strengthen the economy. A rate cut in the February policy seems inevitable now as the Central Bank would have got better clarity by then on the impact of demonetization.

The highlight of the policy was the withdrawal of incremental CRR that will have an immediate effect of 25 bps and provide further liquidity in the system. This will definitely help the banks to drop lending rates, thereby giving the economy, a much-needed breather. The amalgamation of lower interest rates alongside the various progressive measures taken by the government towards deregulation may revive demand in the real estate sector.

Samir Jasuja, CEO & Founder, PropEquity

It is a surprise move by the RBI to not cut repo rates as realty sector was expecting a cut which may have slightly offset the impact post demonetisation announcement by the government. However, there is extreme uncertainty in the sector which has led to almost a standstill situation of sales pan India as many customers are on the fence to see how the situation pans out. As real estate sector in India is sensitive to repo rate cuts which leads to lower borrowing costs for home buyers and triggering demand, we expect rate cut in the next monetary policy review

Rattan Hawelia, Founder & Chairman, Hawelia Group

No reduction in repo rate is not a favourable decision for overall economy growth keeping in view the softening of inflation and also as banking sector has manage excessive liquidity that has entered the banking system due to spike in bank deposits following the demonetization drive. Real estate sentiments will remain unchanged. Further reduction was expected which could have significantly impacted the revival & growth of the market at this juncture of struggling real estate sector.

Pratik K. Mehta, MD, Unishire, Bangalore

It’s rather unfortunate that RBI has retained the repo rate and the much anticipated 25 bps would have changed perception especially for the real estate market which has already been in low side for almost 2 years. Post demonetisation, market sentiments are very low and speculations are ruling the market. The only way to improve the consumption is by improving perception and this would have been possible by reduction of rates.

Anshuman Magazine, Chairman – India and South East Asia, CBRE

RBI’s decision to keep the repo rate unchanged at 6.25% in its fifth bi-monthly monetary policy statement 2016-17 comes as a surprise. Lowering the repo rate would have provided a strong thrust to the real estate sector. Having said that, the Central Bank’s withdrawal of the incremental CRR is encouraging, as it will bring in more liquidity in the market. The committee seems to be allowing some external factors to play out fully before embarking on further policy actions and has left enough room for a larger cumulative rate cut in its next monetary policy announcement expected early next year.

Gaurav Jain, MD & CEO, Jindal Realty

It’s surprising that RBI has kept its repo rate unchanged at 6.25 per cent in its first monetary policy review after Demonetisation. We were hoping that there would be some relief. Rate cuts were required to spur investment in real estate sector. No reduction in repo rate will keep the real estate sentiments unchanged. Further reduction was expected which could have significantly impacted the revival & growth of the market at this juncture of struggling real estate sector. The rate cut would have reduced the cost of funds to homebuyers as well as developers.

Getamber Anand, President – CREDAI National

Though it is unfortunate that the Central bank left all policy rates unchanged today, we are still hopeful and understand that maybe the policy makers are waiting till 31 December to see the final outcome of demonetisation post which an aggressive announcement on rate cuts will be made sooner than later. At this point in time the confidence of the Indian public needs a boost and we are sure that the government will certainly step in to ensure that India’s growth story is not disrupted in any manner whatsoever.

Rohit Gera, Managing Director, Gera Developments & VP, CREDAI

It is disappointing that the Reserve Bank Governor has left the rates unchanged. The recent demonetization move by the Government had led to substantial liquidity in the banking system. Further,this move has led to the need for a stimulus to the economy. The stimulus could have come by way of a rate cut by the RBI. Unfortunately this has not happened and RBI has maintained a surprise status quo.

A drop in interest rates is extremely essential to aid the growth of the economy at large and also stabilize and boost the real estate sector especially since many developers are struggling with slow sales, high inventory and high debt. A rate cut would have given interim relief to the home buyers of the affordable segment thereby enabling government’s ‘Housing for All’ vision.



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