Repo rate cut draws mixed reactions from realty barons

Though a majority of the realty industry has welcomed the RBI's decision to cut Repo rates for the third time in a row, many are of the view that a lot more can be done to reverse the dipping fortunes of the industry, writes Rajesh Kulkarni.

Leading developers across the country have welcomed the RBI's decision to cut rates – for the third time this year – by 25 bps to 7.25 percent from the earlier 7.50 percent in its second bi-monthly credit policy for 2015-16. The Repo rate is the rate at which the RBI lends money to commercial banks.

One basis point amounts to one-hundredth of a percentage point. The reactions to the move have been largely positive with a majority of realty majors expecting it to boost buying sentiments in a sluggish market scenario.

As a direct impact of this decision, banks now will be able to offer home loans are reduced rates, which in turn is likely to trigger a renewed interest in the purchase of property across the country by both end users and investors.

Moreover, exiting home loan customers will also now be in a position to take advantage of the reduced rates by directing their respective banks to either reduce their interest component proportionately or cut the tenure of the home loan.

Welcoming this industry-friendly initiative by the RBI Governor Raghuram Rajan, Manju Yagnik, vice chairperson of the Mumbai-based Nahar Group,says,

"It's a positive step by the RBI and will give the much-needed push to the realty industry. The cut will also bring relief to home customers who are already burdened with a variety of taxes. The move also augurs well for the economy as it reflects the growing confidence of the government."

"The Repo rate cut of 25 bps by the RBI was in line with industry expectations," feels Hariprakash Pandey, senior vice president (finance & investor relations), HDIL. "The industry was seeking an easing of the monetary policy to create enabling conditions for a fuller government policy thrust that hinges around a step up in public investment in several areas that can also crowd in private investment.

"We hope that this rate cut will be replicated by the banks by reducing interest rates and making home loans more consumer-friendly. It will not only accelerate demand for housing, but will boost manufacturing and ancillary industries too," adds Pandey.

Agrees Prashant Tiwari, CMD, Prateek Group who opines that there is a need for a larger rate cut going forward.

"We welcome the repo rate cut and hope the RBI continues to monitor the opportunity to ease rates in the coming months." he says. "This repo rate cut by the RBI will further reduce the cost of borrowed funds to both home buyers and developers while giving banks an opportunity to reduce interest rates. This will ensure the heightened property demand in the coming times."

While the industry has been largely positive on the impact of this latest round of rate cut by the apex banks, there are a few voices of caution like that of Sanjay Dutt, executive managing director (South Asia), Cushman & Wakefield, the global real estate services and advisory firm.

"The demand from end-users may take a bit longer to actually transform to active buying," feel Dutt. "However the decision could rekindle the interest from home buyers and realty inquiries may increase in the short term as buyers begin to anticipate a lowering of interest rates."

It's a view shared by Shailesh Puranik, MD, Puranik Builders Pvt. Ltd, who opines that the decision is only likely to benefit the realty sector if banks follow suit and announce cheaper home loans.

"It's a significant development which addresses the inflation issue and also provides a window to banks to offer cheaper funds. However, we sincerely feel that it is high time that the banking industry announces some downward revision in interest rates in the interest of the real estate industry and the common man looking to buy a roof over his head."

"Its clearly evident that the actual impact of this latest interest rate cut by the RBI can only be only be felt if and when banks pass on the benefits to home buyers by reducing interest rates on their home loans," agrees  Rohit Poddar, MD, Poddar Developers. "Until such time, consumption is likely to remain subdued and investments into realty are not likely to increase," he affirms.

While acknowledging that the 25bps cut is a step in right direction and will boost spirits of existing and new home buyers, Rajesh Jain, MD of the Mumbai-based Neumec Group agrees that the decision would work in favour of the realty industry only if commercial banks passed on the benefit to home loan customers.

Says Jain, "If the benefits are passed on to homebuyers a rate cut such as this can lift the sentiment and encourage more corporate and retail consumers to opt for loans. The reduction is quite substantial and should encourage buyers to go back to their lender and trim the EMI component or reduce the tenure of their loan."

Others like Farshid Cooper, director & head (strategy & business development), Spenta Corporation are not so optimistic."A rate cut is a good idea. However, we haven't seen this create any incremental change in the buying behaviour in real estate," says Cooper.

"In my view, the rate cut won't help pull the real estate market out of the lull that it is in or influence people to buy now rather than later and push them into a decision making mode. The clutter around the announcement of the jump in inflation is actually more worrisome. While it is being stated there won't be any further rate cuts - nobody knows where the bottom is and that's making all equations as status quo in the customer's mind for now."

Following this latest round of cuts, industry experts are hopeful that home loans, auto loans and corporate loans are likely to get a little cheaper, with banks reducing their base rate. Taking the initiative, The State Bank of India has announced a cut of 15 percent in its base rate which now stands at approx 9.7 percent making it among the cheapest in the market.

Taking the cue, other lenders like the state-owned Allahabad Bank has also announced a 0.30 percent cut in its base rate, while others like Dena Bank and Punjab & Sind Bank have reduced their base rates by approx 0.25 per cent to 10 percent. Interestingly IDBI Bank, another major state-owned lender has opted to reduce its bulk deposit rate, which is believed to be a precursor to a likely cut in its lending rates.

It may be recalled that more than 20 banks, including four public sector players had earlier reduced their base rates by approx 0.1-0.5 percent till mid-April this year, following the two consecutive rate cuts announced by the Apex bank earlier in the year. Post this cut, the RBI has again requested banks to lower their lending rates in the interests of customers.