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Indian Real Estate News : Mumbai
RBI's balancing act cheers realty by and large
Source: The Times of India, Mumbai May 13, 2013
A marginal rate cut may not have any significance on the macro-economic indicators of the country but still goes a long way in improving the sentiments of the market, by and large. Hence, when the Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points on May 3, 2013; this effort to manage shortages instead of creating surpluses, was hailed by the real estate sector, as looking to improve economic sentiments among the home buyers.

The RBI trimmed the repo rate to 7.25 per cent, its lowest since May 2011 and kept the Cash Reserve Ratio (CRR) for banks unchanged at four per cent, in line with the expectations. However, it warned that the risk of inflationary pressures persist despite a recent sharp decline in the Wholesale Price Index (WPI) inflation and said a high current account deficit poses the biggest risk ‘by far’ to the Indian economy. The RBI however, warns of little room for more. “The balance of risks stemming from the Reserve Bank’s assessment of the growth-inflation dynamic, yields little space for further monetary easing,” says Duvvuri Subbarao, governor, RBI, in the policy statement.

Realty body CREDAI, welcomes what it calls consistency in rate reduction, along with a caveat of more rate cuts and a plea for a special RBI policy on national housing. Lalit Kumar Jain, chairman, CREDAI, stresses the need for the RBI to formulate a special policy for the housing industry, with a focus on affordable housing and quick and equally affordable financing of such projects. “We sincerely hope that the RBI will keep up the trend of the repo rate cut and facilitate a fall in interest rates, so that the EMI burden on the home buyer gets reduced considerably,” adds Jain. Rating agency CRISIL, says this move was warranted, given the easing of inflationary risks and weaker-than-anticipated demand pressures. In 2012-13, despite a 1.0 per cent cut in repo rates, lending rates came down by a much lower magnitude. Moreover, the lower interest rates can revive investments, only if other issues, such as the delays in land acquisition, forest and environmental clearances and insufficient supply of raw materials, are resolved.

The MCHI-CREDAI has also welcomed the RBI’s decision to slash the Repo Rate by 25 basis points. However, it is disappointed with the central bank’s move to keep the CRR unchanged. Paras Gundecha, president, MCHI-CREDAI, says they expect banks to pass on the repo rate cut to the end-users at the earliest. “Reduction in repo rate will help boost the home buyer’s sentiment and ultimately, revive the sagging real estate market. However, the RBI’s decision to keep the CRR unchanged will negatively affect the developers. It was the need of the hour to infuse liquidity in the cash-starved real estate industry. The reduction in CRR would also have helped in the revival of the economy of the country,” he explains. According to Pankaj Bansal, director, M3M India, given the overall domestic and global economic scenario, the 0.25 per cent reduction in the repo rate announced by the RBI is a cautious but welcome balancing act. “This should result in lowering the cost of borrowing, across all sectors of the industry. Should this result in a drop in housing loan interest rates, it will help revive demand for the real estate industry. We look forward to more demand stimulating measures that will address the complex issues of supply side constraints and thus, help in keeping the inflation under check,” feels Bansal.

Manju Yagnik, vice-chairperson, Nahar Group, states the RBI’s decision is good news for the real estate sector. The rate cut announced by the central bank, ahead of the most auspicious Akshay Tritiya festival, is likely to cheer the home buyers. “There has been a huge demand for homes. We are sure that the home buyers will speed up their decision of buying their dream home in this most positive spell after the rate cut,” hopes Yagnik. Samir Jasuja, founder and CEO, PropEquity, also welcomes the repo rate cut but says that the real estate sector requires larger cuts in the repo rate and hopes that the RBI continues the monetary easing in the coming months.

The market had been hoping for a more aggressive easing and a liberal tone from Subbarao, as India grapples with economic growth that slowed to about five per cent in the fiscal year that ended in March, its weakest in a decade. Many believe the current rate cut may not bring any significant change in the fortunes of either, the realty sector or the home buyers. The sentiments, nevertheless, do matter for the sector which has been therefore, hailing the RBI move.
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