Indian real estate: Its relation with monetary policies
RBI policies
The Reserve Bank of India (RBI) has been quite busy in the last few quarters, trying to make an impact on the country’s economy through modifications of economic policy. In the recent Credit Policy Review, the apex bank has brought down the cash reserve ratio (CRR) by 25 basis percentage points.
The reduction leaves the CRR at 4.25 percent now. This move is expected to infuse Rs 17,500 crores into the banking system. The central bank’s monetary policy is carefully followed by the real estate industry as it has a lot at stakes.
The move has been made keeping in mind the high inflation plaguing the growth of Indian economy getting stable in the last few months. It has been welcomed by the real estate industry which has fell on hard times in the last few quarters. The RBI has also left its repo rate unchanged at eight percent on 30th October, 2012, somewhat disappointing the equity markets.
A lowering of the CRR translates to more money with banks to lend to the market. Coming in the middle of the festive season, this move helps banks launch attractive loan schemes to woo prospective borrowers, especially those who have been waiting expecting lower interest rates. More home loan schemes can be expected with the lowering of the CRR.
Perspectives for buyers and developers
Regarding the home buyers, they can have a sigh of relief, after 13 consecutive interest rate hikes since 2011. This move ensures that the interest rate on home loan will stay at the current level. Analysts are of the view that we are at the end of interest rate tightening cycle and home buyers can now opt for floating loan as the interest rates are likely to come down in the coming months.
Real estate analysts are of the view that as and when general economic condition improves, real estate will revive. Recently much has been discussed about the number of unsold units in metros like Mumbai and Delhi. Government reached out to the banking sector and efforts were taken to ensure that funds are to be lend to the real estate sector so that the sector can find a way out of cash-crunch that it is currently in.
Related challenges
However, it should be kept in mind that several associated terms and conditions like approval of projects are to be eased in order to ensure that projects are being developed and delivered within promised time. Land Acquisition Bill, VAT payment, transparency in realty deals are also expected to have an impact upon real estate sector in the future.
Indian commercial real estate is closely linked with global economic dynamics as the case with most other developing countries. We have already witnessed the impact of these dynamics in the reduced absorption of commercial spaces in most of tier I cities. On the part of residential sector, it does not get much influenced by the global economic conditions as there is inherent demand for residential sector in cities like Delhi and Mumbai, where supply is constrained as compared to the growing demand for residential units.
