Realty maintains optimism despite RBI’s status quo on policy rates
Apr 17, 2014
Source : The Times of India

 

MUMBAI: The real estate industry was expecting a significant rate cut in the policy rates announced by the RBI on April 1, 2014, but all hopes were shattered as the central bank kept the previous rates unaltered. With inflation showing signs of easing and growth regaining momentum, the industry was expecting a cut in key rates to further boost the businesses. Experts believe that this is a good sign though because now at least one thing is clear; the interest rates would start coming down in the near future and the period of escalating interest rates is now over. Customers can buy property at prevailing interest rates considering the fact that rates are expected to start easing in the coming months.

“We hope the era of interest rate hikes has ended,” said developers apex body CREDAI chairman Lalit Kumar Jain. Commenting on the Reserve Bank’s decision not to hike the repo rate, Jain who is also the chairman and managing director of Mumbai-Pune-based Kumar Urban development Limited (KUL), said, “We hope that the RBI will now plan for a consistent decrease in repo rates in the near future.” The RBI’s approach is based on the expectation of a weak monsoon, ambiguity on the setting of MSP for agricultural commodities such as fuel, fertilisers, etc., the fiscal policy and global political outlook. The central bank is taking a cautious step before the elections. Real estate players are expecting market revival with the support of lower interest rates.

“This will have a positive impact on the growth of the real estate industry which in turn, will boost the GDP,” Jain added and recalled that the real estate sector which contributes handsomely to the country’s GDP, has been at a standstill due to the RBI’s negative weightage to the industry and the high interest regime that is not helpful to either the developer or the home buyer. “CREDAI reiterates its request to the RBI governor to take a pragmatic and practical view of the growth of the real estate industry to help revive the economy, and give a boost to the supply side to check price rise. The statement of the RBI governor predicting a consistent fall in the CPI, is a big reassurance,” opined Jain.

The macroeconomic condition of the country is improving now and higher economic growth is expected after the political uncertainty is over. Once the interest rate starts coming down, then the property investors would start showing a greater interest for better returns. The phase of higher interest rate is about to end soon, say the market experts. Abhay Kumar, CMD of Griha Pravesh Buildteck Pvt Ltd, said, “In this unpredictable scenario when the election is round the corner, RBI has taken a guarded step by keeping the rates unchanged with the repo rate at 8 per cent. With the economic indicators being stable and inflation coming down, a rate cut would have attracted more buyers to the sector, who are already struggling under the burden of high EMIs. However, in the near future, the governor has hinted at lowering rates if the macro conditions do permit, which in turn, will boost the market sentiments.”

Some industry players believe that the RBI should focus on the stress of the banking and financial institutions which is in deep trouble due to high NPA as the borrower is unable to pay higher interest rates. So, now is the time to slash interest rates. Aman Agarwal, director, KV Developers, shared that, “We were expecting a cut in the rates by the RBI. We realise that for the apex bank, the priority is to tame inflation but it should not hamper growth either. In the real estate sector in particular, conditions were already adverse with the country approaching the general elections and home buyers choosing to wait. Any cut in key rates, would have boosted the sentiments and impacted demand. We believe the RBI should consider our concerns as well and cut rates significantly.”

The current market situation is ideal for end-users as the interest rate is placed in a correction mode. If the property is available at a good price, then end users should take advantage of this situation because the impact of a volatile interest rate, would be negligible in the long term, say 15-20 years. “The monetary policy is prudent. It said a decline in financial savings, sluggish growth in capital formation over successive quarters, persistently high inflation and low business confidence, are the major reasons for the revised estimate of the potential growth rate being approximately 6 per cent instead of over 8 per cent and hence, modest economic recovery is expected for FY 2014-2015. I hope that food inflation remains on the downward trend, given its seasonality. Unless there is an upswing in business confidence and GDP growth numbers, the sector will remain sluggish, with the exception of affordable housing, due to the underlying demand-supply gap,” said Rohit Poddar, managing director, Poddar Developers.

The response of real estate experts suggest that the real estate industry is optimistic about the interest rate scenario and post elections, sustained growth is expected by the market players. The second half of 2014 would be interesting to see because by then, the elections would be over and the monsoon’s impact will also be clear.

The dilemma of property investors and the end-users over interest rates seems to be getting over in the coming months.

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