Festive cheer may overlook the realty sector
Property-festival-offers
Despite real estate developers trying all kinds of marketing gimmicks like funding schemes with upfront payment as low as 5 percent of home price, interest waiver for 2-3 years and freebies, sale velocity has not picked up. The residential property market has been deserted- by investors due to slow moving market with stagnant or dipping prices and by end users because of unaffordable prices.
Even the unexpected 50 basis point repo rate cut by the Reserve Bank of India (RBI) may not see a significant improvement in demand in the festival season. Earlier, only a part of the multiple rate cuts amounting to 75 basis points effected this year before September 29, was passed on to the consumers by the banks.
However, within a week of the announcement by RBI, the hopes of real estate developers and home buyers seem to have been shattered as the banks have still not transmitted the cut to the borrowers.
The State Bank of India (SBI), which earlier announced a 40 basis points cut in its base rate, has now revised its decision by reducing the base rate cut by 50 percent to protect its margins.
Even more confusing is the SBI’s new policy to offer home loans at 20 basis points higher than the base rate to women and 25 basis points higher than the base rate to men in contrast to its earlier policy of offering to women at base rate and to men at five basis points above base rate.
Although other banks had also announced 20-30 basis points cut in their base rates, home loan rates are still hovering well over nine percent. The inability of the banks to transmit the RBI rate cut to home buyers is sending negative signals across the market.
The extraordinarily high inventory and muted sales call for price rationalisation. RBI Governor Raghuram Rajan had also asked developers to cut prices to spur sales. Even Credai chairman Irfan Razack, advised developers to offload high inventory by rationalising prices. Developers however, are holding on to prices as steep rise in input costs and high cost of loan servicing lowers their margins to a great extent.
Domestic home buyers who form the bulk of customers, are therefore not enthused enough to jump in the fray. They are waiting for prices to fall and in the backdrop of interest rate dampner; it looks unlikely that this festive season will turn out to be a Savior for both developers and home buyers.
