The real estate sector is not too enthused with the announcement of RBI Governor on Friday about the further reduction in the repo rate to 4% as its earlier reductions have not been passed on the real estate sector.
The repo rate is the key interest rate at which the RBI lends short term funds to commercial banks and this in turn helps the banks to lower the EMI burden for their borrowers.
CREDAI president Satish Magar said on Friday they expected more stringent measures from the RBI booster to revive the economy. The move of moratorium extension by three more months is a short-term piece meal solution to a long term problem, he said. “Government now needs to ensure that banks are forthcoming and pass on the benefits to the real estate sector. Currently there is a dearth of income in the sector owing to the Covid crisis. Real estate industry remains the second largest employer after agriculture. Prolonged slowdown in the sector will have a direct impact on survival of 269 allied industries. Hence, it is critical for the government and RBI to take immediate measures to provide economic relief,” he said.
Real estate sector can act as a catalyst in resurrecting the economy, backed by stringent fiscal and non-fiscal measures. The interest rate need to be reduced with firm liquidity measures backed by one-time restructuring of loans to help the real estate sector from crumbling. “This is the need of the hour,” he said.
CREDAI Hyderabad president M. Ramakrishna Rao has said that so far banks have not passed on the benefit of loans at lower interest rates to customers - real estate sector as well as those aspiring as well as those who availed home loans. This has given rise to confusion if the RBI decisions are binding on the banks. A PIL has also been filed by CREDAI seeking clarity.
It is for the RBI to ensure that its announcements are implemented at the ground level to see the desired impact on economy, he said. The benefits of RBI announcements should percolate down quickly as Covid has impacted employment, businesses and people are not sure where they stand, he said.
“This is an extraordinary situation and every one has to take bold decisions. Revenues across the sectors have been impacted. If the wheel of economy slowed down previously, with Covid crisis it has come to a grinding halt altogether. Without revenue generation, how do we service loans. The deferment on EMI should have been till December-end at least,” he said.
“We hope banks will extend cheaper loans in the next few weeks. Real estate sector should not be seen in isolation as over 260 industries are dependent on this sector. The revival of real estate sector will have ripple effect on other sectors and help the economy,” he said.
The escalation of steel and cement prices were another huge concern for the real estate projects that were in different phases of construction. The price of cement was ₹.230 to ₹240 a bag before Covid-19 and in 45 days, the prices were jacked up to ₹400. No industry can absorb such steep hike in material component cost. The real estate sector also paid GST of 18 % to 28 % on most of material components. “All industries should support each other to come through this crisis and government should step in to ensure benefits announced percolated down to ease the ongoing liquidity crisis,” he said.
