Monetary Policy October 2019: Real Estate Outlook

Monetary Policy October 2019 Real Estate Outlook

RBI today announced the cut in Repo Rate by 25 basis points to 5.15 percent maintaining an accommodative stance. Industry leaders from Real Estate share their views and opinion on the rate cut and its impact on the staggering real estate sector.

Right time for RBI to announce its one time roll over scheme: Niranjan Hiranandani, Hiranandani Group

www.newsbarons.comIndia’s Monetary Policy Committee’s continues its ‘Accommodative’ stance for the fifth consecutive time in this year by reducing the repo rate by 0.25 bps which now stands at 5.15%. The paring of repo rate is a move inclined to revive economic growth, ensuring inflation remains muted and spur up the consumption and investment.

With the short term liquidity squeeze prevailing in the economy, even positive net worth companies across the industries are turning into the negative balance sheet. The current economic scenario makes it the right time for RBI to announce its one time roll over scheme similar to that was rolled out during the Lehman crisis in 2009 under the global slowdown scenario, which shall act as remedy to the ailing companies.

A notional nudge, much depends on efficient transmission: Anuj Puri, ANAROCK

www.newsbarons.comIn the April-June 2019 quarter, India’s GDP grew only by 5% – the slowest pace in over six years. Consumers are spending less on everything from FMCG to automobiles – and, of course, real estate. Naturally, the sector eyes RBI’s monetary policy for cuts in the key lending rates to support the various measures taken by the government to boost consumption sentiment.

The repo rate cut of 25 bps to 5.15% announced today is in line with expectations. Considering that the Aug 2019 CPI came in at 3.21% – well below the medium-term target of 4% – RBI had room for such a rate cut. It can probably go some way in improving consumer sentiments ahead of the festive season, which is a crucial quarter for the real estate sales.

However, much depends on how efficiently banks transmit the benefits to their homebuying borrowers. An efficient transmission will lower the cost of capital not only for consumers but also for developers, making room for price revisions and further discounts. Some banks have agreed to link their lending rates to the Repo rates, but all major lending institutions need to follow suit.

Importantly, this rate cut comes close on the heels of the recent announcement of setting up a stress fund of INR 20,000 crore to provide last-mile funding to projects stalled due to lack of capital. This fund needs to get into action soon and demonstrate meaningful results to improve the sentiments of industry stakeholders like FIs, PEs, developers – and most importantly, homebuyers. An announcement regarding the real-time deployment of the stress fund during the festive season can dovetail well with this rate cut and yield a positive consumer response.

There’s still a dire need to do more for affordable-to-mid housing (units priced less than INR 80 Lakh) as nearly 68% of unsold inventory lies in this segment. This is where the ‘real’ end-user demand is and affordable housing definitely needs additional measures such as extending the moratorium period on home loans, subsidies, additional tax benefits, and a revision of the definition of affordable housing.

On a macro level, the overall stress that Indian real estate is in cannot be remedied merely by reduced lending rates – the sector has been reeling under subdued demand for many years. Even if we ignore the euphoric pre-2010 era, new housing project launches in 2018 across top 7 cities were 64% below the previous peak of 2014. Likewise, sales were down by 28%.

The sector is currently still saddled with 6.56 lakh unsold housing units (as of Q3 2019) across the top 7 cities, and developers are struggling to raise funds to complete projects and launch new ones.

25 bps rate cut tepid, more needed to stimulate demand: Shishir Baijal, Knight Frank India

www.newsbarons.comIn light of the ongoing economic distress in the country, the 25 basis points cut in policy rate is short of expectation. While it is the fifth consecutive rate cut this year, it is insufficient to support the flagging consumer demand. The stressed real estate sector was looking up to a strong rate cut and sector specific lending provisions to improve both liquidity scenario and consumer spending ability. As has been witnessed so far, a cumulative 110 bps REPO rate cut over the last 6 quarters has failed to stimulate consumer demand as well as private investment in the economy. A slew of factors such as slowing economic output, rising unemployment rate and low consumer confidence have hindered the percolation of these small quantum rate cuts to the economy at large. On this backdrop, another 25 bps rate cut by Reserve Bank of India (RBI) comes as a disappointment, more so for the real estate sector. The aggravating non-banking financial company (NBFC) liquidity crisis is severely impacting credit availability for the industry, especially developers, as they struggle to raise even construction finance. Lack of liquidity stimulus will only worsen the situation further. Therefore, a substantial rate cut to reinvigorate end consumer demand and intervention on real estate sector specific lending provisions could have been a better intervention at this juncture.

The central bank and the government have taken several measures to aid the supply side in the recent past. However, it is the weak consumer sentiment and spending inability that is the fundamental problem of the current economic slump. Unless meaningful initiatives are taken to propel consumer demand, these supply side interventions may not meet the desired goal of economic revival.

Policy rate nearing a decade low of 5.15% with strong focus on growth: Ramesh Nair, JLL India

www.newsbarons.comThe 25 bps rate cut is definitely a welcome move showing the alignment of monetary and fiscal policy initiatives in the backdrop of a downward revision in the GDP growth to 6.1% for FY 20 . In sync with the general market sentiment, the fourth consecutive rate cut during 2019 by the RBI is aimed at uplifting the growth trajectory of the Indian economy. Riding along the same track, the real estate sector, too, is likely to witness accelerated sales owing to favorable policy reforms and the gradual transmission of rate cuts to end-consumers through lowering of mortgage rates.

The rate cut of 25 bps delivered by the RBI in its fourth bi-monthly monetary policy meeting is in line with the market expectations. This move is in sync with the government’s efforts to accelerate economic activity. Globally, the efforts are being directed to revive growth through rate reductions. Despite upside risks to inflation expectations due to volatile crude oil prices and currency fluctuations, the decision to revive growth needs applause. This step has complimented the series of reforms that were introduced recently.

The consecutive rate cuts have been a succor for the real estate sector thereby making it the most opportune time for buying homes. This has been reflected in the continuous improvement in the residential sales that registered a 14% Y-o-Y growth in sales during January- September 2019 as compared to the corresponding period in the previous year.

The recently announced policy incentives such as the relaxation of ECB guidelines and linking of interest rate on Housing Building Advance to G-Sec yields will help to solve the liquidity issues plaguing the sector. In addition, the creation of a dedicated fund of INR 10,000 crore with an equal contribution from private investors to provide last mile funding to stuck projects is expected to act as a catalyst to the sector. Credit re-structuring measures such as the introduction of repo-linked loans will lead to further transmission of rate cuts to end-consumers. This will positively impact the homebuyers’ decisions to buy homes while ensuring higher transparency.

Growth trajectory of the real estate sector will depend on the successive transmission of rate cuts to the end consumers: Surendra Hiranandani, House of Hiranandani

www.newsbarons.comWith the festive season round the corner, we definitely welcome this move as people make huge purchases during Navratras and Diwali. The real estate sector has been looking forward to such initiatives to boost sales as it is highly sensitive to interest rate movements. This further reduction of repo rate will not only bring down the lending rates but also incentivise investment and boost consumption. The government has already announced a series of measures including steepest cut in corporate tax amongst others to jump-start growth and revive the sagging economy.

The year has been good so far with lot of policy measures being taken by the government. A wave of next gen reforms has set the stage for years of high growth for the real estate sector. However, the growth trajectory of the real estate sector will depend on the successive transmission of rate cuts to the end consumers. We are already witnessing an increase in the number of enquires too ahead of the festival. Real estate is a safe investment that will definitely give good appreciation and returns in a long term. Overall, it is not only the festive spirit, but also the market momentum that is poised to be in favour of the home-buyers. So, one must take advantage of the current scenario and invest with a long term perspective to ensure superior returns.

This accommodative stance will help in stirring demand among homebuyers: Chintan Sheth, Ashwin Sheth Group

The Reserve Bank of India’s decision to reduce repo rate by 0.25% bps is a step in the right direction. This accommodative stance will help in stirring demand among homebuyers. With festive season beginning, this decision has come at a right time. Today’s announcement will help in boosting consumption, in the existing scenario when there’s an economic slowdown. Secondly, RBI’s recent mandate on directly linking repo rate with fresh home loan rate was much needed to ensure immediate transmission of rate cut. After RBI’s decision, we request the government to take necessary steps to create housing demand across segments in this slowed economy.

Rate cut will enliven the consumer sentiments towards investment and consumption: Rahul Grover, SECCPL

Rahul GroverWith a continuous effort of reviving the growth of the industry, the recent announcement of the RBI rate cut will enliven the consumer sentiments towards investment and consumption. With the onset of the festive season, the RBI has ensured a much needed brief rest to the stressed real estate sector. The new rate cut and as per recent RBI mandate, new home loans will be directly impacted by the new repo rate resulting in a reduction in lending rate. This will help push the demand-side helping it improve the sales and overall economy.”

It is a welcome step towards bringing liquidity in the sector: , Ozone Group

Srinivasan GopalanIt is a welcome step towards bringing liquidity in the sector considering the current market scenario. The rate cut of 25 bps was expected and we are optimistic that with lending rates coming down marginally, there will be a speedy consumption. We are yet hopeful for further rate cut by RBI in next bi-monthly policy which is need of the hour

The rate cut expected to ascertain the lower lending rates in a bid to encourage economic activity across the sectors: Rohit Poddar, Poddar Housing and Development

www.newsbarons.comThe MPC has delivered the fifth straight rate cut with an aim to support the government’s actions to boost the CAPEX in the economy amid benign inflation. Recently the concerns over the stability of the financial sector have taken center stage. Liquidity situation remaining in surplus during August and September, and agriculture being well-positioned to revive the domestic economy is noted as positive signs. The rate cut of 25 bps with an accommodative stance is expected to ascertain the lower lending rates in a bid to encourage economic activity across the sectors.

Rate cut shows the commitment of the government to improve the current state of the econom: Rohit Kharche, Director, The Baya Company

Rohit Kharche The announcement by the monetary policy committee to cut the repo rate by 25 bps to 5.15% for the fifth consecutive time shows the commitment of the government to improve the current state of the economy. We are optimistic that this policy will trickle down to end consumers in order to propel the real estate industry, thus strengthening private consumption and spur further investments”.