Real Estate sector disappointed with status-quo by RBI

Even as many voices said that the Reserve Bank of India is unlikely to cut interest rates further this year, the real estate sector — though disappointed by today’s actions — is holding out hope that it will do so in coming months.

On the RBI’s decision not to cut rates during its third monetary review today, the sector was pragmatic. “This policy is on the expected line from the Apex Bank,” said Manoj Gaur, President, CREDAI NCR.

Rajesh Prajapati

Rajesh Prajapati

“In recent months, financial markets have experienced high turbulence due to the Greek crisis, the Chinese stock market slump. Considering hazy picture on Retail inflation, or consumer price index (CPI), too has inched up to 5.4% over the past month.

However, Rajesh Prajapati, MD, Prajapati Constructions called it an injustice. The real estate sector is in the middle of one of the worst structural slowdowns in recent memory.

“The status quo by RBI discourages home buyers as well as developers. This is a grave injustice. The entire buyer-developer community was expecting the reduction in the interest rate; so that the burden of EMI can come down, however the RBI has disappointed all,” he said.

“On behalf of the developers and the buyers, I request the Government to intervene and take some steps to ensure that the general buyers get affordable finance. This will help the Government to achieve it’s much published ‘Housing for All’ plan.”

Though the Modi Government has shown some initiative in taking away RBI’s powers to set interest rates, such moves have come under heavy criticism already.

Pradeep Jain, Chairman, Parsvnath Developers said: “In the backdrop of high consumer price inflation, it was expected that the RBI would keep the rates unchanged.”

Aman Agarwal, Director, KV Developers struck a conciliatory tone. “We know for the apex bank, the priority is to tame inflation but it should not hamper growth,” he said.

“For real estate sector in particular, conditions are already adverse as sector is facing huge inventory, high input cost and high cost of funds. Any cut in key rates today would have boosted the sentiments and could have impacted demand. We believe RBI would consider our concerns as well and would cut rates significantly in near future.”

However, Real estate sector has been facing high input costs, high cost of funds and a moderate demand over the last few months.

The analyst community is divided in half by those who believe that the RBI will cut interest rates once more this year and those who see no such possibility.

Sujan Hajra, Chief Economist -Anand Rathi Financial Services said: “In Jun’15 the RBI had front-loaded today’s rate-cut. The focus on today’s monetary policy was on the future of the monetary-policy committee and the role of the Governor.

“Governor Rajan deciding to hold rates despite pressures from various circles augurs well for the independence of the RBI,” he said.

He also added that the importance of CPI inflation as the correct measure was re-instated, highlighting the uselessness of the WPI figures from a policy perspective.

“The real policy rate (with respect to the CPI) implies that there exists a small window for another 25-bp rate cut. The timing of this would depend on inflationary trends, rainfall during Aug-Sep and the US Fed hike. Barring unexpected softening of either growth or inflation, we feel that the probability of a further rate cut in 2015 is low. Nevertheless, if the lower inflation projections by the RBI materialise (our estimates also show inflation softening), the RBI might in end 2015 pare the rate by a further 25bps,” he added.