Bottom Line: After regulator, rate cut is another confidence booster for homebuyers.
It may have been a very marginal rate cut by the Reserve Bank of India (RBI) and definitely not anywhere close to what the RBI has done in the past, but yet this rate cut promises to have substantive impact than mere symbolic discussion for both the homebuyers as well as the real estate sector. As a matter of fact, this rate cut promises to have multiplier effect on the fortunes of the sector, along with the goodwill generated with the decks being cleared now for a real estate regulator in the sector.
For the records, the RBI Governor Raghuram Rajan in his bi-monthly monetary policy review has cut the repo rate by 25 basis points to 6.5 per cent; thus clearing the decks for home and auto loans, among other loans, to become cheaper. The policy interest rate has been now lowered to more than five-year low, while indicating the prospect of another cut later this year if inflation trends stay benign.
From the standpoint of homebuyers, this definitely has a multiplier effect on the psychology which had been subdued for quite some time due to high interest rates and trust deficit with the sector. The industry has hence given its thumbs up to the RBI’s gesture.
Anshuman Magazine, CMD, CBRE South Asia feels that on the back of moderating inflation levels, controlled fiscal deficit and cautious economic sentiments, the RBI’s decision to pare key interest rates in its latest monetary policy review was largely expected by the industry.
“The rate cut is likely to help lower borrowing costs and support growth further in 2016. For the real estate sector this is particularly critical. It is expected that this benefit will be completely transferred to the borrowers, which will result in lower lending rates, thus helping to revive housing sales,” says Magazine.
Ashish Raheja, MD, Raheja Universal calls it a welcome step. He believes the move will surely have a positive impact on the economy as well as across sectors at large. “More specifically from the real estate sector perspective, we believe that there will be some renewed interest from prospective homebuyers who were hit recently by the ready reckoner rate hike across Maharashtra. While this move is positive it is left to be seen whether banks will pass on these benefits to their customers.”
Deepak Joshi, President and Chief Business Officer, Religare Housing Development Finance Corporation says this coupled with Marginal Cost of funds based Lending Rate – (MCLR) on which SBI has already taken a lead, will further reduce the lending rates in the market and increase credit off take. “Also, EMIs on retail consumer loans will further soften which will increase demand for auto and home loans.”
However, it would be pertinent here to note that though the RBI Governor sounds optimistic with the direction of the economy and signals more rate cuts in near future, the move will only have its affect when the banks pass on the benefits to the consumers. Failing this, it would be another symbolic gesture on part of the policy makers that will have no impact on the fortunes of the sector or the pocket of the homebuyer.
A large section of economic analysts are hence giving a word of caution on this. They are conscious of the fact that now is the right time to revive the fortunes of the sector. While the confidence on the part of the fence sitting homebuyers is somewhat back to the market with seriousness of the policy makers to clean the functioning of the sector and assure the delivery process, this rate cut can have a multiplier effect if the benefits are immediately passed on to the buyers.