NEW DELHI: Today, the Reserve Bank of India (RBI) released its fifth bi-monthly monetary policy statement for 2019-20 in which the Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, has decided to keep the policy repo rate unchanged at 5.15%. In 2019, the RBI has cut repo rate by 135 basis points so far to a nine-year low of 5.15%.
Here are exceptions from Real Estate Industries
Avneesh Sood, Director Eros Group.
To boost the country’s sagging economy RBI decision to slash the repo rate by 25bps for the sixth consecutive time to revive economic growth is not the solution to boost investment and, thereby, lift the economy from the slump. Despite a 135-basis point (bps) reduction in the policy rate since February, growth has not revived. In fact, the country’s GDP growth immersed further in the July-September quarter to 4.5% the lowest in 26 quarters, as compared to 5% in the preceding quarter.
The government must find ways to drastically improve the revenues to bridge the growing fiscal deficit gap. It is essential to stick to the budgeted fiscal deficit without cutting the revenue and capital expenditures. The banking sector has transmitted the repo rate cuts by cutting their lending across various loan products. Simultaneously, banks were left with no option than to cut the interest rates on the deposits which effected the mobilization of resources.
In an investment-driven economy, the growth of household savings is crucial and, therefore, the deposits rate must be synced to food inflation. The senior citizen’s deposits with banks are significant and since the former depends on the interest pay-outs for their needs, a reduction level will be detrimental to their interests. Therefore, banks must look for alternatives such as curtailing costs, other operating costs and reduce the cost of funds by drastically improving the share of low-cost deposits. The stimulus packages are still to manifest the intended results and, as such, the government must review or revisits the measures in force and initiate corrective steps to accelerate growth and lift the economy from the slump.
Kaushal Agarwal – Chairman, The Guardians Real Estate Advisory.
The status-quo on RBI’s decision to not reduce the rates comes as a surprise and contrary to the industry’s expectations, which is skewed on the back of increasing inflation and depreciation of the rupee. From an economic standpoint, a cut in repo rates would have had a direct impact on home loan rates. The government had consistently looked at reducing the repo rates to boost demand.
We further hope the lenders will pass on the benefits of the previous rate-cuts which will help in the revival of the industry. We believe there is a need to reduce the borrowing cost for the customers to bring in the next leg of demand which in turn will lead to the much-required growth in the economy. However, all eyes will be on the budget now, where a lot will be expected from the Government. The continuity of reforms under the second term of the current Government is needed to boost home-buyer sentiment.
Niranjan Hiranandani President NAREDCO
Despite expectations of the rate cut, The Reserve Bank of India (RBI) stayed away from taking a cue from their global counterparts and decided not to continue with repo rate cut for the sixth time in a row, which was the need of the hour to revive the slowing economy. But the Monetary Policy Committee (MPC) decided to take a pause after five consecutive rate cuts this year. MPC lowered the repo rate by 135 basis points between Feb-Oct, 2019. The GDP growth target for 2019-20 is also revised downwards from 6.1 percent to 5 percent.
The benefit from the previous rate cuts are yet to play out completely and the real estate industry is still reeling under the liquidity crisis. India Inc. was expecting a rate cut of 1.0 instead of small tinkering such as a rate cut of 0.25 bps, which would have provided a boost to the Government’s recent initiatives to kick-start GDP growth. Announcement of One Time Roll Over to restructure bad loans would have been a logical step for the revival across the industries. Thus, the decision to wait and watch the outplay of previous cuts will go against the current sentiments. The markets overall are disappointed.
Ramesh Nair, CEO & Country Head – India, JLL
The central bank by keeping the rates unchanged has recognised that the need of the hour is to infuse confidence about the economic growth through a holistic approach. This will come by combining fiscal and monetary measures.
Amidst the ongoing debate of whether the RBI will bottom out its rate cut cycle or continue to slash policy rates, the sixth bi-monthly monetary policy review of 2019 ended with the central bank keeping the policy rate unchanged at 5.15%. The conjectures over the RBI pulling a pause button over rate cuts turned out to be true as it has maintained its accommodative stance.
The decision to maintain policy rates augurs well for the economy as the recently introduced policy reforms will take time to pan out and materialise. The economy needs to absorb the impact of the recently introduced reforms and the previous rate cuts. The real estate sector is expected to pick up due to the favourable policy incentives and the faster transmission of previous rate cuts.
Moreover, with the inflation already crossing the 4 percent mark and expected to remain elevated for a few quarters, further rate cuts would have posed an upside risk.
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 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.
Ketan Musale – Director, Dotom Realty
The rate cut would have been the need of the hour to provide the much-needed fillip to the real estate sector and to facilitate growth. However, the real estate industry, in particular, has been benefiting through policy interventions to stabilize the market. The country has a large number of potential home buyers and a rate cut would have incentivized to improve their sentiments. Furthermore, we look forward to the government’s decisions to lower rates in the future that will contribute to strengthening the GDP growth and create a robust economic framework.
Anuj Khetan – Director, Vijay Khetan Group
Despite the current situation in the overall economy, RBI’s decision to not lower interest rates has come as a disappointment to the real estate industry. The urgency to take measures to revive growth in the real estate was the need of the hour at the present scenario. However, the government recently announced Rs 25,000 crore funds for stalled affordable and mid-segment housing projects across the country to bring relief to the ailing residential sector and homebuyers. A rate cut would have surely boosted confidence in the segment bringing in the much-awaited momentum in sales. We still hope that the growth priority prevails and a substantial easing is brought about in the next policy cycle.
Manoj Gaur, MD, Gaurs Group & Chairman, Affordable Housing Committee, CREDAI
With RBI maintaining status quo on policy rate front, it is important to focus on improving the transmission of the past rate cuts. At 5.15% the repo rate is very near the historical low, but it is yet to lead to any sort of revival in consumer demand. The reason being that the benefits of the past rate cuts have not been passed on the customers. Hence, it is important to focus on effective transmission. Also, with this being the last monetary policy before the all-important budget, the ball is now in Government’s court. Will have to wait and see what steps Government takes to revive the demand and economy as a whole. With RBI maintaining status quo on policy rate front, it is important to focus on improving the transmission of the past rate cuts. At 5.15% the repo rate is very near the historical low, but it is yet to lead to any sort of revival in consumer demand. The reason being that the benefits of the past rate cuts have not been passed on the customers. Hence, it is important to focus on effective transmission. Also, with this being the last monetary policy before the all-important budget, the ball is now in Government’s court. Will have to wait and see what steps Government takes to revive the demand and economy as a whole.
Dhruv Agarwala, Group CEO, Elara Technologies
Food inflation spiked to 6.9 per cent in October, a 39 month high, pushed up by a sharp increase in prices of vegetables due to heavy unseasonal rains. As per the RBI, the CPI, particularly food inflation is likely to soften only around Jan to Feb 2020. Under the circumstances, the apex bank had little option but to maintain status quo with regard to the REPO rate. With GDP growth having fallen to 5% in Q1 and further lower to 4.5% in Q2, mainly due to lower consumer demand, the ball is now in the Govt’s court to get the engine of the economy revved up again. It will be interesting to see what steps it announces in the coming days.
Sharan Bansal, Joint Secretary, CREDAI Ghaziabad
The real estate industry is disheartened by the status quo maintained by RBI today. With GDP growth plummeting to 4.5% Q2 and RBI cutting down growth forecast for current fiscal to 5% from 6.1% the expectation was that the apex bank will announce another cut so to improve consumer sentiment. The real estate being an interest sensitive sector would have benefited from any cut in policy rates provided government looked after its passing down to the consumer. But, to our surprise, RBI has maintained status quo mainly to check rising CPI inflation. The monetary stance will adversely impact chances of revival of the demand in the immediate period and a lot would depend on Govt action going forward.
Amit Modi, Director, ABA Corp & President (Elect), CREDAI Western UP
By maintaining the status quo, the RBI has given some kind of surprise after a long time. Unfortunately, it is contrary to our expectation. The whole industry was assuming a 25 bps cut. Most of the economist also had similar expectations. But it seems the inflationary expectation has outweighed growth projections. In the last few months, Government has announced certain measures to revive demand particularly for real estate sector like constitution of realty AIF, lowering GST on affordable housing among others. It remains to be seen what additional measures it takes to revive the economy.
Anupam Gupta, Sales and Marketing Director, GBP Group
The RBI has cut the repo rate by 135 basis points so far this year and growth sliding to 5% in Q1 and 4.5% in Q2, the expectation was for another deduction in the key policy rates as a lower interest rate would have helped raise the credit demand thereby providing much needed impetus to the overall economy of the country. Amid recent announcements by the finance minister to revive the real estate sector, the industry was hoping for some extra bonanza from the Reserve bank.
Prateek Mittal, Executive Director, Sushma Group
After slashing the repo rate continuously for 5 times, RBI has maintained status quo on repo rate at 5.15 percent in today’s monetary policy. Though, we expected a rate cut of at least 25 bps this time as well. With unchanged repo rate, we expect the government to take up some fiscal measures to boost the demand and enhance customer’s sentiment along with passing on the benefits of previous rate cuts to the end users.
Anuj Puri, Chairman – ANAROCK Property Consultants
Contrary to overall expectations, the RBI kept the repo rates unchanged to 5.15% while maintaining an accommodative stance. From a real estate point of view, a rate cuts are obviously always welcome as they help improve overall sentiment. Also, lag-less transmission of rate cuts to retail borrowers as RBI has mandated banks to directly link interest rates with repo rates. The expected rate cut of 25 bps would have caused home loan values to fall below 8% for first time ever
However, it is also true that another rate cut alone would have been insufficient to stir housing sales significantly across budget categories. 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.
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 FM – can actually stimulate residential sales out of their current lethargy.
Rajan Bandelkar, President, NAREDCO Maharashtra and Managing Director, Raunak Group
The status – quo maintained by the RBI on the rate cut was much expected. The RBI’s stance of taking a pause looking at the growth – inflation dynamics will not move the economy any further. In the past also, the advantage of the rate cut by the RBI was not passed onto the customers by a majority of the banks, which impacted the growth of the real estate sector.
In the given situation, the RBI should not just look at the repo rate revision, but instead, take a holistic approach. It must consider an important area like the restructuring of realty loans, as well as, reintroducing of subvention schemes. It must take steps to streamline much-needed financing into the sector.
An IPO of a small finance bank raising Rs 76,000 crore in such a volatile market, is an indication that there is no dearth of finance, but there is a serious issue of confidence. The RBI and the Government should work on this issue to bring back life into the system and the real estate sector, too.
Sundeep Jagasia,Managing Director, Shree Krishna Group
Looking at the market dynamics, we were projecting the RBI to cut down the key policy rates. A rate cut could have been ideal as we are moving towards strong policy changes at the national level which will leave long term effects on the realty sector and its allied industries. The previous repo rate reductions by the apex bank are yet to offer the complete results; that is held by the banks. We hope that future rate cuts happen soon, thereby creating a wave of positive sentiments in the market.