After five consecutive repo rate cuts this year, the Reserve Bank of India (RBI) on Thursday decided to keep the policy rate unchanged at 5.15 percent in its sixth bi-monthly monetary policy committee (MPC) meeting, while continuing with "accommodative" stance.
The real estate sector, which has bore the brunt of continuing demand slowdown in the country, leading to a huge pile of unsold inventory in recent years, has given a mixed reaction on the central bank's MPC decision.
Shishir Baijal, chairman and managing director, Knight Frank India, said that the RBI's decision has come as a disappointment and a rate could have spurred growth in the real estate and auto sectors.
“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,” Baijal said.
He expects a rate cut in the next meeting if economic growth remains subdued.
Rajan Bandelkar, president, NAREDCO Maharashtra, said that the advantage of the previous rate cuts by the RBI was not passed onto the customers by a majority of the banks, which impacted the growth of the real estate sector.
“In the given situation, the RBI should not just look at the repo rate revision, but instead, take a holistic approach. It must consider an important area like restructuring of realty loans, as well as, reintroducing of subvention schemes. It must take steps to streamline much needed financing into the sector,” Bandelkar said.
“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,” said Anuj Puri, chairman, ANAROCK Property Consultants.
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 finance minister — can actually stimulate residential sales out of their current lethargy, Puri added.
However, Ramesh Nair, CEO and country head – India, JLL, said that the previous five repo rate cuts along with recently announced reforms announced by the government are expected to help the real estate sector higher growth in the future.
“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,” said Nair.
Meanwhile, Ashok Mohanani, chairman EKTA World and vice-president NAREDCO Maharashtra, said: “Residential home inventory being available at a great financial value and the RBI maintaining the repo rate will translate into an 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.”