AuthorSwati Sharma
The Indian Real Estate Industry has undergone a massive changes in the past few years. A number
of top developers and builders are coming up with huge commercial and residential estates. In the
present era of globalisation, privatisation and liberalisation the demand for the commercial property
has increased a lot. It is undoubtedly true that the economic policies of the government and the RBI
policies have greatly influenced the realty market. In our country, the various measures undertaken
by RBI have cast certain effects in the real estate industry.
2018 has been a really exciting year for the realty sector. To put an end to multiple taxes like CST,
VAT, Service Tax, Sales Tax, Central Sales Tax, the Goods and Services Tax was introduced, but
the introduction of the GST was a minor setback. The Real Estate (Regulation and Development)
Act was introduced and gave the realty market a much needed boost.
Besides all this, it is true that the policies introduced by RBI always leave a major impact on the
industry. The factors such as delays in the execution of housing projects by the builders and the
decrease in demand has resulted in industry slowdown. To recover the health of the Real Estate
Industry, the Reserve Bank of India has come up with the new strategy.
Unchanged Repo Rate
Repo rate is the rate at which banks borrow from RBI on a short-term basis against a repurchase
agreement. Under this policy, banks are required to provide the government with the collateral
securities and later buy them back after a predefined time. Reverse Repo Rate is the reverse of repo
rate, the rate RBI pays to banks in order to keep additional funds with RBI.
The important decision that was taken on 4th
and 5th
December 2018, at the fifth bi-monthly meeting
of the Monetary Policy Committee about the unchanged Repo Rate at 6.50 % and the Reverse repo
rate at 6.25 percent received a warm welcome from experts and developers. The RBI had hiked the
repo rate twice in June and August,2018 but its decision to keep the repo rate unchanged at 6.50 per
cent will boost the realty sector.
The topmost advantage of this decision is that it has opened a great opportunity for buyers and they
will surely go ahead with their purchase plans. This unchanged repo rate has come as a relief to the
real estate industry already struggling with high inventory and low liquidity post the NBFC
(Non-Banking Financial Company) crisis. Also, the rupee has depreciated against the dollar and this
should also attract NRI investors.
PropTiger.com’s chief investment officer Ankur Dhawan said a hike in rates would have been
detrimental for the industry which is already going through fund constraints due to the liquidity
issue in non-bank finance companies. CBRE’s Chairman, India and South East Asia Anshuman
Magazine stated that the MPC's decision paves the way for RBI to work flexibly, supporting overall
economic growth by strengthening bank lending. "We believe that the decision to maintain a stable
repo rate will prove beneficial from a consumption and lending perspective, thereby boosting
economic growth," he said. Nahar Group’s Vice Chairperson Manju Yagnik called the RBI
decision, a well-thought-out move as it will attract more home buyers with unchanged interest rates
on home loans.
On the flip side, some experts termed it as a worrisome movement from a macroeconomic
perspective. “This is surprising and contrary to the industry’s expectations, which skewed more
towards an increase on the back of increasing inflation and depreciation of the rupee”, said Anuj Puri, Chairman, ANAROCK Property Consultants. He further added that “This move could have
been seen as favourable for the real estate sector in the short-term, however, banks have already
started increasing their lending rates even before the monetary policy was announced. It will result
in an increased fiscal deficit, which does not bode well for any industry, including real estate, and
also in further erosion of the rupee’s value”.
RBI’s Monetary Policy Committee Decision’s Highlights
? The Apex Bank cut statutory liquidity ratio (SLR) by 25 basis points to 19.25 per cent from
January 1, 2019, adding that it would be reduced by 25 basis points every quarter until it
reaches the 18 per cent level. The RBI has taken this step to boost liquidity with the
commercial banks, which would fuel growth and demand in the economy. (The Statutory
Liquidity Ratio (SLR) refers to the proportion of deposits the commercial bank is required to
maintain with them in the form of liquid assets in addition to the cash reserve ratio).
? The Reserve Bank of India (RBI) lowered retail inflation projection in the range of 2.7-3.2%
for the second half of the current fiscal against its previous projected retail inflation to be
around 3.9-4.5 per cent in the October-March period of 2018-19, citing softening of food
inflation and the collapse in oil prices.
? The MPC panel retained its GDP growth estimate for the current year at 7.4%. For the next
fiscal, RBI projected growth rate at 7.5%.
? The RBI has mandated banks to use external benchmarks for their floating rate loans
instead of the present system of internal benchmarks. The RBI will release final guidelines
for new pricing of loans by the end of December 2018.
In the nutshell, we can say that this move will surely have a positive impact on the housing market
and one can expect better sales with the improved economic scenario. Property seekers who were
waiting for the RBI’s announcement on the repo rate seems happy as now they won’t have to delay
their plans to buy their dream home. The majority of the experts are taking this step positively as it
will not burden the end user. In May 2018, the Online Development Permission System was
introduced, the developers in Gujarat believe that any further repo rate rise would have affected
their commercial and residential sales. So, the decision to keep the repo rate unchanged is a relief to
developers, home buyers and real estate stakeholders at large.
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