BENGALURU: Real estate developers said the Reserve Bank of India’s decision to cut its benchmark repo rate will boost demand for affordable housing but will not significantly improve the buyer sentiment in the mid-income segment.
RBI on Wednesday cut its repo rate by 35 basis points to 5.40%, its fourth rate cut in a row.
“For real estate, a rate cut of 35 bps is however insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities,” said Anuj Puri, chairman at Anarock Property Consultants. Puri said the rate cut may boost demand for affordable housing, which accounts for some 240,000 unsold units in these cities, as this highly budget-sensitive segment is already enjoying other incentives.
As per Anarock, this rate cut, even if adequately transmitted by banks, will not mean much for mid-income housing in tier-I cities where the main concern is unaffordable property prices and not interest rates.
“Growth will also depend on whether there is a proportional transmission of rate cuts to the end consumer,” said Ramesh Nair, country head at property consultant JLL India. Builders hope the rate cut would translate into lower EMIs on housing loans and aid the sluggish property market. “We hope banks and housing finance institutions will and pass on the benefits,” said Ashish R Puravankara, managing director at Puravankara Ltd. “For the real estate sector, a reduction in the cost of funds means that we can pass that on to our customers directly, which will be encouraging for the sector at large.”
According to JLL India, the real estate sector has already registered a 22% year-on-year growth in sales in the first six months of 2019. During this period, Hyderabad recorded the highest growth in sales at 65%, followed by Delhi NCR at 42%. In Chennai, sales were 51% lower than the year-ago period.
Builders said sales are likely to receive a fillip with progressive policies of the government such as its decision to lower the GST rate on affordable homes to 1% from 8%, without input tax credit (ITC). The government has also reduced the GST rate on projects under construction, which are not under the affordable housing segment, to 5% from 12%.