Business Today

RBI policy: Why repo rate cut is unlikely to stir housing demand

While the current cut marks the fourth consecutive reduction in repo rate since February 2019, it has, thus far, not translated into any significant lending rate cuts

twitter-logo Goutam Das        Last Updated: August 7, 2019  | 16:06 IST
RBI policy: Why repo rate cut is unlikely to stir housing demand

The Reserve Bank of India's (RBI) repo rate cut of 35 bps to 5.4 per cent may not mean much to the realty sector, struggling with unsold inventory and construction finance bottlenecks on one hand and low homebuyer trust on the other side.

While the current cut marks the fourth consecutive reduction in repo rate since February 2019, it has, thus far, not translated into any significant lending rate cuts. Until banks pass on the cut to borrowers, there may not be much impact on demand.

"In light of the present economic distress in the country, we welcome the move to bring down repo rate by 35 bps," Shishir Baijal, Chairman and Managing Director of Knight Frank India noted in a statement. Nevertheless, he was expecting a more substantial cut. "While it is the fourth consecutive rate cut this year and is in line with RBI's recent shift to an accommodative monetary policy stance, it may not be sufficient to give the required impetus to stalling consumption numbers," he said. 

"Of the 75 bps rate cuts thus far, only up to 35 bps have been transmitted to end users; another similar rate revision is not expected to trickle down much. On this backdrop, RBI's 35 bps rate cut is only marginal, more so for the real estate sector," he added. 

Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani, stated that going forward, "it is imperative for banks to reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move". Real estate, he noted, is a highly cost sensitive sector. "Demand will only pick up if the cut is substantial to result in significant cost savings."

Anuj Puri, Chairman of ANAROCK Property Consultants, pointed out that the rate cut, even if adequately transmitted by banks, will not do much for mid-income housing in tier-I cities where the main concern is unaffordable property prices and not interest rates.

"On the other hand, demand for affordable housing, which accounted for 2.40 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives. Even minor downward revisions in interest rates can and do make a difference in affordable housing. If banks transmit this reduction in the prime lending rate to consumers, budget housing demand may improve. Likewise, housing demand in tier-II and tier-III cities, where property prices are less prohibitive, may see an uptick," he noted.

Also Read: MPC Meet: EMIs to come down as RBI cuts repo rate by 35 bps to 5.40%

Also Read: Petrol to be sold in supermarket? Modi govt mulls relaxing retail fuel norms

Also Read: SBI cuts home loan rates by 15 bps across all tenors after RBI policy announcement

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close