Monetary Policy December 2019: Real Estate Outlook

Monetary Policy December 2019

The RBI Monetary Policy Committee (MPC) decided not to further lower the repo rates, while maintain an accommodative stance, contrary to the expectations of the real estate sector. The MPC had lowered the repo rates by 135 basis points between February 2109 to October 2019. The committee has also revised downwards the GDP growth target to 5% from 6.1% for 2019-20.

NewsBarons presents the views of leading real estate developers on the announcement and its impact on the real estate.

RBI springs a shocker, keeps repo rate unchanged at 5.15%: Niranjan Hiranandani, Hiranandani Group

Despite expectations of the rate cut, The Reserve Bank of www.newsbarons.comIndia (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.

RBI stumps expectations, real astate no better or worse: Anuj Puri, ANAROCK Property Consultants

Contrary to overall expectations, the RBI kept the repo Anarock on IBC Actrates unchanged to 5.15% while maintaining an accommodative stance. From a real estate point of view, 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.

RBI defies expectations: Shishir Baijal, Knight Frank

The industry expectation was that slowing economic www.newsbarons.comgrowth would take precedence in RBI’s policy decision. Hence, 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 much required reprieve to some ailing sectors like real estate and auto. RBI has probably taken the cautious approach of wait and watch to see the effect of past rate cuts and also to assess the inflation trajectory. With economic growth remaining subdued, there are still chances of a rate cut in the next meeting.

After five consecutive rate cuts in 2019, the Central Bank takes a pause: Ramesh Nair, JLL India

The central bank by keeping the rates unchanged has Senior Housing growth potentialrecognised 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.

RBI has taken an accommodative stance with temporary pause in the rate cut: Rohit Poddar, Poddar Housing and Development

RBI has taken an accommodative stance with temporary www.newsbarons.compause in the rate cut. The regulator is looking to make the next cut at a time when it will have the optimum impact. With liquidity remaining in surplus since June and the 135 bps cut till date, the impact will eventually play out in its expected actuality which will help real estate sector in the long term

No rate change has come as a surprise basis the current economy situation: Yogesh Joshi, CREDAI MCHI Raigad

The Reserve Bank of India has kept it rates intact and it Monetary Policy December 2019remains constant at 5.15%. This comes as a surprise basis the current economy situation. The central bank has cut rates by 135 basis points since January till now, but these moves might not be enough to spur growth in the sector. The stressed real estate sector was admiring a solid rate cut and sector specific lending provisions to improve both liquidity situation and consumer spending capacity. We are optimistic that next monetary policy will trickle down to end consumers in order to propel the real estate industry, thus making inflation mild, boosting CAPEX in the economy and private consumption which will spur further investments.

Overall real estate sector will see stability in terms of investment and purchase behaviour: Ashok Mohanani, Ekta World

After 5 times cut in a row this year, RBI decided to keep Ashok Mohanani, Chairman, EKTA World, Vice President, NAREDCO Westthe repo rate unchanged this time at 5.15% and continue with the accommodative stance as long as it is necessary to revive growth. The overall real estate sector will see stability in terms of investment and purchase behavior. Monetary policy easing since February 2019 and measures initiated by the government over the last few months are expected to revive sentiment and spur domestic demand. Keeping in mind the 135 bps change given over the year and with the revival of the industry we are still looking at a room for positive transmission for the industry. Residential home inventory being available at a great financial value and RBI maintaining the repo rate will translate into increase in demand and witness sales velocity in the residential segment. We expect a further increase in demand and an overall improvement in the health of the real estate sector.

We were expecting a rate cut: Sanjay Daga, Runwal Developers

Infrastructure forms the backbone of the economy and contributes significantly towards achieving higher GDP growth. At a time when economy is reeling under pressure owing to the slowdown, we were expecting a rate cut to alleviate the stress on the real estate sector. Therefore, the RBI’s decision to keep the repo rate unchanged comes as a bit of a surprise and doesn’t augur well for the industry. There is a serious liquidity crunch due to unavailability of funds from NBFCs. This could further lead to reduction in demand. A rate cut in the monetary policy would have been favourable as that would have boosted the buyer sentiment and lowered the costs for developers thereby giving a shot in the arm to bring the real estate industry and economy back on to the growth path.

We hope that future rate cuts happen soon : Sundeep Jagasia, Shree Krishna Group

Looking at the market dynamics, we were projecting the Monetary Policy December 2019RBI 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.

RBI decision to take a pause doesn’t come as a setback to the real estate sector: Rahul Grover, SECCPL

The RBI decision to take a pause doesn’t come as a Rahul Groversetback to the real estate sector as a whole, as we already have liquidity in excess of 2 trillion pumped into the banking system. The repo rate has consistently been decreased throughout the year. However, we haven’t yet seen a proportionate increase in lending as of today. Clarity in terms of future guidance on policy rates and liquidity conditions will go a long way towards increasing lending and investor confidence in the real estate sector.

We have the support of liquidity and government initiatives to revive demand: Amit Jain, Arkade

Even with the unchanged repo rate, we now have the support of liquidity and the government initiatives to revive the demand from home buyers. The real estate market as a sector witnessed a slow but rising demand from the end-users in the recent festive period after the last rate cut. Also, despite the slowdown, we have witnessed robust growth in the market due to PMAY and commendable reforms in the affordable housing segment by the Government of India. However, the wheels of change will only churn some results when the benefits of this revision are passed on to the consumer by the banks and inflation is kept under check. We hope this decision will be assertive and reflect from the first quarter of 2020.

The ‘accommodative’ stance leaves scope for reduction in the next meet: Anurag Mathur, Savills India

The Monetary Policy Committee decided to hold the Monetary Policy December 2019benchmark rates after five successive rate reductions in 2019. This comes at a time when the Indian economy has slid to a six-year low, however, The ‘accommodative’ stance adopted by the MPC today does leave the scope for reduction in the next meet. The purchase of real estate had risen marginally in major urban centres of India during 2018. However, for the Real Estate sector to contribute significantly to the GDP once again, it is essential that consumption increases in much larger volumes. For the sector to generate higher revenues and growth, a stronger impetus is required for a larger mass of consumers. While we think that the rate-cut was quite desirable, the MPC seems to have adopted the view that the key may not lie in rate-changes at present.

The ball has been passed on to the government’s court now. The need would be to increase spending, readjusting its fiscal-deficit targets for 2019-20 and to boost consumption and investments. The MPC had delivered five successive rate cuts in 2019, which was commendable. Its latest position of holding the rates, even if temporary, demonstrates caution amid rising concerns.

Delivery of older projects is needed for regaining customer confidence: Sunil Mishra, Trespect 

Since there has already been an unprecedented 135 bps Monetary Policy December 2019rate cut over the past 10 months, another 25 bps in addition would not have been an earth-shaking move, for motivating home-buying. Enough interest rate incentive has been provided already this year. What’s needed more are quick execution of the Rs 25000 Cr stalled-housing Fund, more support to struggling HFCs for becoming more aggressive with their Home Loans, and sustained delivery of older projects for regaining customer confidence. What’s also needed are measures to bolster the larger economy, so that people become more confident of making purchase decisions.