In the first monetary policy review post demonetisation, the Reserve Bank Of India (RBI) has chosen to maintain status quo on policy rates. With no changes in rates, RBI has surprised everyone and real estate developers who have yet to figure out a strategy to battle the impact of demonetisation.
Almost everyone expected the central bank to slash repo rate somewhere between 25 to 50 basis points, based on the fact that the increased liquidity into the banking system post demonetisation would enable such a move. In its last review in October, the central bank had reduced the repo rate by 25 basis points to 6.25%.
Cut down in repo rate would have ideally brought down bank’s borrowing costs, eventually leading to
- Lower loan rates for individuals and companies
- Help revive private investments in an atmosphere where short-term growth is likely to be impacted
- Help the banks to drop lending rates, thereby giving the economy, a much-needed breather
Here’s how the experts and builders reacted on the RBI’s decision:
“It is a disappointment for all the industries, including real estate. For developers to lower prices, their cost of funding should come down first. The RBI’s decision would worsen the liquidity condition for property developers”, said Rajeev Talwar, chief executive officer, DLF.
Voicing his opinion regarding RBI’s decision, Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani says, “Quashing repo rates by at least 25 bsp at this time would have provided some cushion from the impact of demonetisation. While it is anticipated that the Fed might increase rates from December, so reducing rates here could have an inflationary effect in the medium term, we have to remember that post demonetization, the downside risks to growth has increased significantly. This coupled with sluggish credit off take over the last few months has dampened economic activity across all the sectors”.
“The real estate sector was in a great need of a rate cut even if it was to be of 25-50 basis point. The realty sector is already under immense pressure due to negative market sentiments and lost demand,” said Deepak Kapoor, President, CREDAI-Western UP.
“A reduction could have had a positive impact for the real estate sector which is troubled by the increasing burden of development and borrowing costs”, said Vineet Relia, Managing Director, SARE Homes.
Though the unchanged repo rates in the last month of 2016 has disappointed the developer community, let us expect better when RBI announces policy rates in its meet scheduled on Feb 7 2017.