Realty, infra await consumption boost despite RBI’s efforts

Real Estate

Currently, the Indian economy is facing weak investor sentiments and its adverse impact has left the real estate and the infrastructure sector gasping for breath. This situation is deeply worrying and there is no silver lining visible in immediate future since the RBI’s efforts to make the loans cheaper with a cumulative reduction in repo rate by 135 basis points in the current fiscal, besides a favourable budget announced by the government,  have altogether failed to inject cheer in the market.

Due to the unavailability of positive growth triggers the demand has witnessed steep downturn. The monetary policy committee (MPC) has undoubtedly tried to boost credit and improve sentiments, but the industry stakeholders remained dissatisfied. Even in its last meeting the MPC continued with an accommodative stance and left the policy rates unchanged. The industry stakeholders are however of the opinion that a considerable reduction in repo rate this time could have helped in improving sentiments. The RBI actually did not have headroom for any further rate cut.

The MPC maintained a status quo with an accommodative stance and the repo rate kept unchanged by it for the second consecutive time actually reflected its concern over rising food inflation. This also conveys the MPC’s uneasiness due to rising crude oil prices, besides fear of coronavirus which has affected the global economy and a host of domestic factors.

Anurag Mathur, Chief Executive Officer, Savills India, said, “The status quo on the benchmark lending rates has been announced by the RBI is as per the expectations. Despite the Union Budget 2020-21 embarking upon a policy aimed at boosting consumption, the recent increase in consumer price inflation breached the upper tolerance limit of RBI and did not provide the apex bank the room to lower interest rates.” 

Grappling with liquidity crunch, the real estate sector despite 135 bps repo rate reduction could not look up since the benefits of the repo rate reduction could not fully trickle down to the end-users and only a minimal amount was passed on to the end-users. Here we must note the residential segment of the real estate sector needs to show a more upbeat performance for the government to successfully achieve the target of a 10% nominal GDP growth rate in fiscal 2021.

Pankaj Kumar Jain, Managing Director, KW Group added, “Considering the rising inflationary pressures and slowing GDP growth, the industry was expecting the RBI to cut repo rate by at least 25 basis points in this last monetary policy statement of the current financial year, but the apex bank chose to maintain status-quo second time in a row which is an utterly disappointing move for all the stakeholders of the real estate sector.” He added that the timing of this policy review was significant as it came just after the announcement of the budget which largely turned out to be a non-event for the real estate sector. “If a rate cut was announced in this policy review it could have spread much-desired positivity in the real estate market. Still, all is not lost, and it’s the time the apex bank should immediately issue directions to the home loan providers to pass on the benefits of the repo rate reduction of 135 basis points accumulated all throughout this financial year,” added Jain.

According to NAREDCO Vice Chairman, Parveen Jain, ‘The unchanged bi-monthly repo rate should have been lowered by which the interest rates of home loans could have been brought down and which would have benefited the Housing Finance. This needs to be considered methodically. We hope the Repo-rate is lowered next time as it is bi-monthly, for the benefit of the buyers and for the Real Estate sector as an entity.”

Ramesh Nair CEO & Country Head, JLL India said, “RBI’s decision to maintain repo rates is driven by the fact that inflation has been rising continuously in the past few months and reached 7.35% which is the highest since August 2014. Although the overshooting was on the back of volatility in food prices, the mandate to keep inflation in the target zone could be at risk if the RBI resorted to further easing of repo rates. Moreover, food prices have been softening and are expected to stabilize in the next few months.”

The accommodative stance of the RBI in the wake of the inflationary trend has simply aggravated the woes of the realty sector, which is grappling with liquidity, said Rajan Bandelkar, President, NAREDCO West, adding that the earlier repo rate reductions did not translate effectively and now, the RBI must look into this issue to boost the housing demand. ”

Commercial real estate sector stakeholders are also looking for relief. “Commercial Real Estate requires a boost on the liquidity front to ensure smooth sailing throughout the year 2020. With the RBI maintaining a status-quo, much more is expected from the government to ensure liquidity to this category,” said Khetsi Barot, Director, The Guardians Real Estate Advisory.

Lakshmi Iyer, CIO (Debt) and Head of Products, Kotak Mahindra Asset Management Company said, ‘The decision to stay put on rate front was in line with our expectation. This is a step towards credit transmission and demonstrates RBI’s intent towards supporting growth. Also, CRR exemption for incremental lending to auto, residential housing, MSME is a good way to chanelise credit in areas where demand has not met with commensurate supply.”

However, FICCI President Sangita Reddy said,  “A cut in the policy rate by at least 15-25 basis points would have been timely. the RBI’s decision to hold the policy rate comes on the back of inflation moving beyond the central bank’s comfort zone. While the outlook for inflation remains uncertain, FICCI is of the view that this is largely a supply-side phenomenon.”

Niranjan Hiranandani, President, NAREDCO added “Holding on repo rate twice indicates growth on the backburner, eyes on inflation targets. Reduction in the repo rate would have surely helped demand uptick across the industries and brought in some relief to the end-users with transmitting rate cut benefits down the line. We expect fiscally stimulating measures to enhance credit supply in the economic ecosystem to address dire need of liquidity crisis and bridge the widening trust deficit.” However, “the positive output performance of core sectors and thrust to retail loans for specific sectors like auto, residential real estate, and MSME’s will certainly uplift the confidence and push the demand –consumption economics,” he concluded.

 

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