The Indian real estate sector was not very pleased with the Reserve Bank of India’s (RBI’s) decision to keep key repo rate unchanged at 5.15% in its December policy review on Thursday, i.e. 4 December. This is the first pause after five consecutive rate cuts by the monetary policy committee (MPC) since February, during which the policy rate was lowered by 135 basis points.
RBI governor Shaktikanta Das mentioned during the post-policy interaction that the policy rate decision was a “temporary pause” in the interest rate-cutting cycle and the MPC will be better placed to decide on it in February after more data comes in and the government brings out its Union Budget for 2020-21. Das indicated that RBI doesn’t want to reduce the policy rate again and again, and is waiting for the impact of the previous rate cuts to fully seep into the system.
Real estate developers, however, were of a different view. Many believe that it was time for RBI to go full throttle to revive credit demand in the economy. “RBI’s decision to not lower interest rate has come as a surprise and a bit of a disappointment to the industry. Lower interest rate would have helped push up credit demand and investment in the economy, aiding overall economic growth. It would have provided a much-required reprieve to some ailing sectors like real estate and auto,” Shishir Baijal, Chairman and Managing Director, Knight Frank India, told leading media houses.
Niranjan Hiranandani, president of National Real Estate Development Council (NAREDCO), told BW Businessworld: “The decision to wait and watch the outplay of previous cuts will go against the current sentiments. The markets overall are disappointed.”
Experts now also believe that the current situation can’t be handled just by monetary policy interventions. Anuj Puri, chairman, ANAROCK Property Consultants, told BW Businessworld: “The previous rate cuts throughout 2019 had almost no perceptible impact on residential sales. In fact, back in 2014, even when the home loan rates were high in two digits at 10.3%, housing sales remained at peak levels.” He added, “In the present scenario, only the combined effect of lower interest rates coupled with other measures such as a cut in personal taxes – reportedly being considered by the finance minister – can actually stimulate residential sales out of their current lethargy.”
However, Ramesh Nair, CEO and country head, JLL India, backed RBI’s move to opt for a pause while maintaining a positive outlook for the real estate sector in the country. “In light of the recently announced reforms doled out by the government, the real estate sector is expected to register higher growth in times to come. Measures brought so far are likely to show their impact. Complementing the corporate tax cuts and the creation of an AIF (alternative investment fund) for stressed projects, the government should explore the options of increasing the money supply in the economy. That would not only encourage consumer spending but also stimulate investment flows and higher credit flow which has come down over the quarters,” said Nair.
[“source=hindustantimes”]
