By: Ravi Sinha
When the Reserve bank of India was announcing the CRR rate cut by 50 base points, the house wife Sugnadha Dubey, glued to TV news channels, couldnât resist the temptation to call up her husband to know whether the EMI burden on this middle class home owner is going to ease out from next month. With no background of the world of financial jargon, her husband could only assure her with a wishful thinking.
However, while the financial market in general and real estate fraternity in particular was going ga-ga over the rate cut, many middle class Indian home owners were wondering if a hike or slash of petroleum product gets reflected in the market immediately, why such a mechanism doesnât work in the housing finance market.
Beyond such apprehensions, however, the fact remains that the rate cut is hailed as the biggest savior in the housing market waiting for a âgood newsâ for months now. Sachin Sandhir, Managing Director, RICS South Asia says the 50 basis point cut in the cash reserve ratio by the RBI, will definitely help in easing the existing liquidity pressures prevalent in the market, both for businesses and consumers.
âIt is anticipated that this marginal cut in CRR will help release an addition Rs 32,000 crore of liquidity into a cash strapped market, thus ensuring better availability of credit. It is also prudent to mention, that this change in the cash reserve ratio is a statement of direction by the apex bank, where if inflation remains within the acceptable limits, easing interest rates can be expected in the coming few quarters. Given the fact that the mortgage or home loan interest rates have been on the increase over the last financial year, in tandem with increasing policy rates as a counter measure of rising inflation – the marginal cut in the cash reserve ratio is indicative of expected declines in interest rates in the near future,â says Sandhir.
However, how soon these rate cuts will take place will depend on various factors that influence RBI policy such as inflationary pressures, fiscal deficit limits etc. Notwithstanding this, the real estate sector has welcomed the CRR rate cut by the RBI and said it will help revive demand in the housing segment. Industry body Confederation of Real Estate Developers’ Association of India (CREDAI) has called it a step towards bringing in liquidity in the sector.
“The CRR cut will bring in liquidity. It will help the Real Estate Market which is cash starved. However it is important to see the interest rate that shall has to come down to facilitate the home seekers to buy homes,” said Lalit Kumar Jain, National President CREDAI & CMD of Kumar Urban development.
CREDAI said the policy actions are expected to improve liquidity in the system and anchor medium-term inflation expectations.
“We are happy that the RBI has taken cognizance of the plight of the productive sector and has lowered the CRR by 50 base points. This move will help to curb the negative sentiments in the economy to some extent in general and real estate sector in particular,” Gaurav Mittal, governing council member of CREDAI & MD of CHD Developers, said.
“However, this is just an indication that the sequence of rate rise is now behind us. What we will need now is consolidation of government finances so that funds are available for the private sector,” Mittal added.
Manoj Paliwal,Â CFO, Omkar Realtors & Developers said, â0.50% reduction in CRR announced by RBI is a step in right direction although too less and a bit late. Â We do not foresee any immediate impact on the interest rate which is disappointing as Real Estate is Â top notch Â priority for the Â common man. Â Therefore, liquidity for real estate companies will improve only after other sectors have got sufficient funding.â
Deepak Shah, MD – Sumer Infrastructure said, “This is an encouraging sign for all industries,Â businesses and hence, the overall economy.Â We canÂ expectÂ more such steps in the futureÂ from the central bank. This will reduce the interestÂ rates on lendings and home loans. It will not only improve liquidity for the industriesÂ resulting into better production andÂ GDPÂ growth but it will also push demand for housing and other goods. The reduction in rate was anticipatedÂ and it has come asÂ a nice New Year gift from RBI. We hope that this trend continues in this calendar year fostering the India growth story.”
Kamal Khetan, MD, Sunteck Realty said, “The cut of 50 basis point will surely bring liquidity in the market. The move will tame inflation and act as a stimulus to growth. For the real estate industry, there wonât be immediate effect on borrowing however we could expect a reduction of interest rates in the months ahead.”
Well, the wish list of home buyers like Sugandha Dubey may not have been heard with immediate effect, the rate cut definitely promises to revive at least the sentiments in the housing market, if not the ground realities.