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 home loans 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.

RBI cut key interest rate

With the recent news that RBI has decided to cut the key interest rate, it is expected that this move of RBI will boost the affordable as well as premium housing demand and it also improve sentiments in the sluggish property market. Property consultants and real estate developers have demanded that interest rates should be further reduced. According to one of the realty Magazine, “This move is hope for the reduction in mortgage rates, which would improve residential sales in all over the country that have been suffering from general slackness in recent times. As per the recent research of JLL India, “Housing sales drop by 1.75 lakh units in the primary markets of 7 major cities in 2014 against nearly 2 lakh units in the previous year due to less demand. Happy with softening inflation, RBI decided to cut the benchmark interest rate by 0.25 per cent to 7.75 per cent with a view to boost growth.

Positive views of leading realty developer:

According to Rajeev Talwar, Group executive director of DLF, “It’s an awesome New Year gift and it seems that the finance ministry has putting his effort to convince RBI governor. Given the background of RBI governor, even the small beginning will be marked as big signs of hopes for the Indian economy”. The more he added that, this move would definitely encourage buyers now to invest in new homes or second homes.

Anuj Puri, Global property consultant JLL India Chairman & Country Head stated that “I expect this cut in interest rate to be the first of several to come and these will cumulatively make a big difference for home loan borrowers, as in present, the current interest rate cut will help revive market sentiment, which is very timely”.

Parsvnath Developers Chairman Pradeep Jain, appreciated the RBI decision and stated that realty sector has been struggling from the last 3 quarters with lower demand and more inventories. This decision would help reduction in EMIs and thereby encouraging fence sitters to conclude deals. Developers would also get funds at comparatively lower rates.

This move will instill hope as well as confidence in the real estate industry which is recovering from housing sales is around the corner, stated the Sanjay Dutt, Cushman & Wakefield Executive Managing Director, South Asia. Whereas; David Walker, MD of SARE Homes, said, “This step of RBI will cheer up the markets and hoped that financial institutions will pass on this reduction to customers, which in turn would boost housing demand”.

As per the Lalit Kumar Jain, Chairman of CREDAI, the apex organization of real estate developers, RBI’s decision is as a good beginning but said this is not enough as a reeducation of 200 basis point within short span is needed. Whereas; the Consultant Knight Frank India CMD Shishir Baijal, stated that This decision of RBI is positive approach that would benefit the debt burdened developers and stretched households alike and to comment on this RBI decision Anshuman Magazine, Chairman & MD of property consultant CBRE South Asia, said that this decision is good and in current market situation this reduction in the base rate is an important step in improving home buying sentiments.

According to CREDAI (NCR) President Rohit Raj Modi, “The rate cut will help the real estate developers to expedite projects that were otherwise facing tight fund crunch”. The more he added that home buyers are dreaming to own a home that would also get a boost as we expect an accelerated purchase cycle. Mohit Goel, CEO of Omaxe stated, that this move clearly shows RBI’s shift in stance in favor of positive growth and it is also correct time to usher in a slew of out-of-policy measures such as; to allow the banks to lend more to real estate, easy funding norms and more. Now real estate sector will play role of a catalyst in driving the overall economy.”

Amit Modi the ABA Corp Director said, “This was the most awaited change and development in policy and now easing interest rate will help to revive the health of businesses such as; Real-Estate which are highly sensitive to interest rate movements.” According to Ansal API Vice Chairman Pranav Ansal, “This is so positive step from RBI, which will boost housing sales and improve overall sentiments in the real estate market. The more he added it is a good sign and now real estate sector will look forward to RBI take the drastic steps in its forth coming monetary policy”.