RBI’s Monetary Policy draws mixed reaction from Realty Sector

Modi’s dream of Housing for All by 2022 seems to have caught the fancies of the entire nation. Be it the government, banks or real estate developers–everybody is trying their best to turn this ambitious dream into reality. On one hand, in the Union Budget 2014, the FM announced several incentives for affordable housing; on the other hand, by increasing the limit for affordable housing for home loans, RBI came up with another bonanza just a week after the budget. Further, RBI also accorded infrastructure status to affordable housing projects. That’s not all! In line with this cherished dream, realty giants are launching affordable projects in various cities.

Undoubtedly, all these measures together have infused positive sentiments in the market. Amidst this, in its third bi-monthly monetary policy review, the Reserve Bank of India (RBI) kept the repo rates unchanged at 8 per cent.

Though a small cut in the interest rates would have been really appreciated, the decision however has received mixed responses from the real estate fraternity.

“The RBI’s decision to keep the rates unchanged is pretty much in line with the market expectations as the central bank plans to tackle inflation which is slightly on the higher side. The administration is looking to bring down the inflation rate to 8% by next year and shall act as necessary to bring about sustained disinflation over a period of time. Overall the third Bi monthly policy review is aimed at bringing about long term prosperity and reviving the Indian economy,” says Abhay Kumar, CMD, Griha Pravesh Buildteck Pvt Ltd.

Similar views were echoed by P Sahel, Vice Chairman, Lotus Greens Developers Pvt. Ltd. He says, “Over the last two months, India’s macro-economic indicators have showed signs of improvement, signaling the march of economic recovery. Against this backdrop when things have started moving in the right direction, the RBI’s stance to keep key policy rates unchanged should basically be seen as a hedge to check against any backsliding should there be a spike in inflation due to a deficient monsoon and food price volatility.”

Though being looked as a measure to tame inflation, several developers are of the opinion that a small cut would have helped increasing the sales volume significantly. “A cut of 25 bps would have actually infused some fund and would have resulted in sentiments boost. This would have encouraged sales as well for real estate sector in particular,” believes Aman Agarwal, Director, KV Developers.

Keeping the repo rates unchanged actually mean no immediate relief for home buyers in the form of cheaper loans. “Currently, the Government’s focus is on infrastructure development, which through boosting supply and in turn that will help to bring inflation down. As inflation and rates fall, homeowners will benefit from lower EMI’s and also appreciation in the capital value of their homes,” informs David Walker, Executive Director of SARE Homes.

All said and done, realty stalwarts are now looking forward to the next RBI monetary review. They are optimistic that in the next review, RBI would come out with some positive notes to boost the economy as a whole.

“Although the real estate sector would love to see interest rates cut so as to allow for lower cost of borrowing and repayment on home loans, I think the wait won’t stretch too long before the central bank deems it fit and proper to bring down rates. Till then the industry has to build on the momentum provided by the positive announcements in the budget last month,” adds Sahel.

Well, what will happen in next monetary review, only the time will tell. However, let’s hope for the best!