After RBI rate cut, realtors look to banks to cut interest rates

The Indian realty sector has welcomed the 25 basis points (bps) repo rate cut, but said it was expecting a higher slash.

Niranjan Hiranandani, CMD, Hiranandani Group, said the rate cut falls a bit short of market expectations as practically everyone was expecting it to be 50 bps. He said, "The move certainly has the potential to reduce overall burden for home buyers and can potentially, boost real estate sales by enhancing positive sentiment for home seekers. I see further scope for rate cuts going ahead, subject to good monsoon and improved transmission of rate cuts to end users."

The latest rate cut, realtors said, has added to the overall efforts of bringing down interest rates in the economy, including lending rates. While the repo rate cut will have a direct bearing on the interest rate structure, a series of structural changes, including cut in small savings rate, marginal cost of funds based lending rate, and reduction in minimum daily maintenance of CRR will also lead to better transmission of current and previous rate cuts, they said.

"Going forward, a benign inflation outlook and low investment demand gives RBI the leeway to further cut interest rates. We expect banks to soon start lowering lending rates and this, along with the government's push to the housing sector, should reinvigorate demand in this critical segment of the economy," said Rajeev Talwar, CEO, DLF Ltd.

Being the first bi-annual monetary policy of the year 2016-17 and considering the existing economic conditions in the country, there was a definite need for a rate cut, said realtors. "This cut will help in giving the desired push for the economy. We appreciate the RBI's move as the cut will help in reducing interest rates during the festive season. We expect home buyers will be benefited due to this cut. Considering less volatility in the international market, the stable Indian economy, and the real estate sector performance in the past few months, we had expected a higher rate cut," said Hariprakash Pandey, SVP - finance, HDIL.

Another reason developers are happy with the rate cut is because it has come well in time for the upcoming Gudi Padva and Akshaya Tritiya festivals that are seen as very auspicious occasions for people looking to make new purchases.

Shailesh Puranik, managing director, Puraniks Builders, said, "The move is timed perfectly as the rate cut announcement has come just before Gudi Padva, one of the most auspicious periods for buying a new home. We hope the banks and financial institutions will pass on the benefit to home buyers."

Manju Yagnik, vice chairperson, Nahar Group, said, happy times will continue for the home loan seekers as the rate cut will bring some respite to customers with home loans during the upcoming festivals. "This will also give a thrust to government's 'Housing for all' initiative that has potential in job creation, improve social infrastructure and give a boost to the Indian economy as a whole," she said.

While RBI has done its bit, realtors are keenly awaiting how banks react to this move. Ashwin Sheth, CMD, Sheth Corp Ltd, said, "Interest rate is one of the important factors as the equated monthly installments (EMI) is directly linked to it. Therefore, if the banks pass on the benefits and the EMIs fall, we feel the demand for the housing should witness momentum as far as buying new properties are concerned."

Ashish Raheja, MD, Raheja Universal, feels, the sector will see some renewed interest from prospective home buyers who were hit recently by the ready reckoner rate hike across Maharashtra. "While this move is positive it is left to be seen whether banks will pass on these benefits to their customers," he said.