RBI winds fail to blow demonetisation winds

RBI winds fail to blow demonetisation winds
08/12/2016 , by , in News/Views

In a time when the whole country is juggling with the old and new currency, RBI, in its fifth bi-monthly policy review for the year kept the rates unchanged, falling against the expectations of the market, especially after demonetisation.

Putting an emphasis on the expectations of the market Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz said, “This move by RBI has come out against the market projections and a rate cut at present was of utmost importance, as the buyers were unsure about investing in the realty sector, post demonetisation. Demonetisation has allowed clarity for the buyers along with transparency in the sector, and the developers are well geared up for the end users to take the momentum forward. A rate cut in the present scenario could have pushed the banks to drop the interest rates further, the benefit of which would have been directly helpful for the buyers and the realty market.”

Real estate sector in particular was in dire need of a rate cut as the sales had suddenly taken a sharp fall with the market not showing any signs of growth in near future. This being the last policy review for this calendar year, the first one post-demonetisation and second review by Dr. Urjit Patel; hopes were very high as a repo rate deduction was observed last time as well.

Dhiraj Jain, Director, Mahagun Group says that considering the short term effects of demonetization, this decision is a highly thought off one. He adds, “The CPI inflation has been kept on check for three consecutive months, whereas the GVA came out to be lower in Q2. But for the real estate sector, it is a setback, as already the sales had dropped significantly post demonetisation and the fraternity was expecting a repo rate cut or a drop in CRR, which would have ultimately benefitted the end users interested for investing in the property market.”

Due to the demonetisation effect, secondary real estate market had taken a hard hit and the onus had completely fallen upon the primary market to perform and revive the realty sector. A rate cut at this point of time could have provoked the end users to invest in the market and help it gain momentum. Although, banks are still to pass on the benefits of previous rate cuts to the consumers, a hope on which the market is still relying.

Avneesh Sood, Director, Eros Group echoed the views and said that since demonetisation, it was quite evident that real buyers will become prominent in the market and end users will be in majority. Banks had already reduced their interest rates, post the previous policy review; and a rate cut in fifth policy review would have further motivated these potential primary buyers to make full use of the reduced EMIs. With ready to move in properties high in demand, property prices already at its lowest, a rate cut at this point of time could have pushed the sales further; either for long term retention or end use.

Ashok Gupta, CMD, Ajnara India Ltd. said, “The market and economy will take some time to balance the affects arising out of demonetisation and hence, the decision today by RBI stands as neutral. Realty sector has just witnessed the exit of numerous secondary real estate buyers and a rate cut at this time would have helped the primary sales to grow. As we are on the edge of this year end, all eyes will now fall upon the next year’s monetary review and the union budget, where much is again expected out of the government, especially for the Indian realty sector.”

With no change in the Repo Rate, Reverse Repo Rate under the LAF at 5.75 percent, Statutory Liquidity Ratio (SLR) at 21.5 percent, Cash Reserve Ratio (CRR) at 4 percent and Marginal Standing Facility (MSF) at 6.75 percent respectively. After no change in the monetary policy review, realty experts are projecting the growth graph to move uniformly with the end users playing the cards by reaping out the benefits of reduced EMIs and property prices. Investors market though stands in the mid-way with no such guarantee of returns looking, as the prices are at its bottom, country going cashless on higher denominations and not many signs of appreciation in the upcoming 6-9 months.

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