The decision by the Reserve Bank of India (RBI) to cut the benchmark interest rate by 0.25 per cent to 7.75 per cent, although small, will boost the overall sentiment in the real estate market, the industry felt. The liquidity-starved industry has seen increasing non-performing assets (NPAs) and banks have been wary of increasing their exposure to it.
The rate cut is also an indicator that inflation is now under control and that the government is keen on initiating steps to boost economic growth, felt experts.
“It is a small step but reflects positive intent and sends the right signals,’’ Lalit Kumar Jain, President, Confederation of Real Estate Developers’ Associations of India (CREDAI) said, adding, ``currently the effective rate is around 10.25 per cent as banks are not passing on the rates fully. The industry cannot sustain business at a rate above 8 per cent and we are sure the rate will be brought down further.’’
The move is expected to instill hope and confidence in the real estate industry. "However, the impact of this move on the real estate sector will be manifested only when commercial banks lower their lending rates. Leading banks may actually lead the obvious reduction,’’ said Sanjay Dutt, executive MD – South Asia, Cushman & Wakefield, a real estate consultancy. He expected demand from end-users to take a bit longer to actually transform into active buying.
Mr. Jain said a reduction of 200 basis points within a short span is needed. "RBI should look at the housing sector favorably given its linkages. It needs a policy for project funding to developers and has to take into consideration the market’s cyclical nature.’’
"I expect this cut in interest rate to be the first of several t come and these will cumulatively make a big difference to home loan borrowers,’’ said Anuj Puri, Chairman, JLL India, a real estate consultancy. "As of now, the current rate cut has helped revive market sentiment, which is very timely.’’ EOM.
