Realty industry speaks about RBI’s hike on repo rate
The six-member monetary policy committee of the RBI headed by Governor Urjit Patel, hiked the repo rate – the short-term lending rate by 25 basis points to 6.25 per cent. This was the first rate hike by the Indian central bank in four-and-a -half years.
Mr. Rohit Gera, MD, Gera Developments and VP CREDAI Pune Metro said “The increase in the repo rates will not have much of an impact as far as the real estate sector is concerned. A 25 basis point increase in the average lending rate which is approximately 8.5% currently to 8.75 % increases the monthly EMI by less than rupees 16 per lakh. For a loan of rupees 50 lacs this is less than 800 rupees per month. Further the increase in the annual salary required for a Rs 50 lakh loan assuming 50% of the monthly salary goes towards the EMI is approx Rs. 19,000. This is negligible and hence apart from a small temporary psychological effect there will be no major impact at all.”
Mr. Khushru Jijina, MD, Piramal Finance & Piramal Housing Finance addressed it as a mature and calibrated approach. “It is a mature & calibrated approach by Monetary Policy Committee to hike policy rates by 25 bps while maintaining a neutral stance during a volatile period. This indicates RBI will remain vigilant on retail price levels in the coming months. RBI’s evaluation and outlook for Indian economic growth is encouraging and looks positive for the economy. Consistently improving manufacturing data, recovery in private capacity utilization and IBC resolutions indicate an imminent revival in private investment activity. Amongst the reforms announced, an important announcement was made regarding home loans upto INR 35 lakhs being considered as priority sector lending. This would give a boost to affordable housing real estate sector and help in economic growth”, he added.
Mr Ashwin Sheth’s, CMD of Ashwin Sheth Group quoted that the RBI’s decision to hike the repo rate and reverse repo rate was a little unexpected. The realty sector is on a revival path with the past reforms and a rate cut at this time would be an ideal step to further propel the growth of the industry. The rate hike will make home loans costlier which will ultimately affect end-users, particularly those looking to buy homes in the affordable and mid-segment. He hopes the RBI addresses this in the next policy announcement due in August 2018.
Siddha Group’s, Director, Mr. Samyak Jain expects that RBI should cut interest rates, he says, “RBI Governor Urjit Patel’s decision to hike the repo rate to 6.25% and reverse repo rate to 6% will see a spike on home loans and indicate an increase of inflation on the economy. A rate cut would have helped spur growth of the real estate sector. Implementation of the recent reforms in the real estate sector has brought in much-needed transparency and ease of doing business. We expect the RBI to cut interest rates in the near future to complement the series of policy measures by the Government.”
Terming the rate hike as ‘justified’ on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards, Dr. Niranjan Hiranandani, founder & CMD, Hiranandani Communities and President (Nation) NAREDCO, said the hike of 0.25 basis points in the repo rate would not make a major difference to real estate. He added that in the long run, “we would prefer rates coming down”.
Mr Shailesh Puranik, MD, Puranik Builder quoted “The RBI’s decision to hike the repo rate and reverse repo rate to 6.25% and 6% respectively in the 2nd bi-monthly policy of the FY18-19 poses an inflation risk and might make home loans costlier. Keeping in mind the revival of the realty sector owing to the various policy reforms, a rate cut would have further complemented the government’s initiatives. The realty sector which contributes a lion’s share to the country’s GDP requires more sops along with rate cuts from the central bank. We will adopt a wait and approach and hope that this is a short term hike in rates.”
“The potential increase in interest rates is unfortunately going to impact the developers more than the end user (homebuyer). Not only do their cost of funds increase, the rate increase can impact velocity of sales as fence sitters will see this as another reason to postpone their home buying decision. In the past developers have tried to get sales boosted by throwing in more goodies/ offers but these schemes have had limited success”, says Colliers International India’s Managing Director, Mr Joe Verghese.
Mr. Shishir Baijal, Chairman & Managing Director, Knight Frank India said “The RBI’s stance of increasing the policy rate by 25bps is in line with our expectation considering that the crude oil flared inflation level and the interest rates in the broader economy have been marching higher for some time now. However, this increase in policy rate will delay the revival of the country’s housing market, which after suffering a prolonged period of slump has just begun to show early signs of improvement on account of uptick in affordable housing.”