Slump-hit realtors have something to cheer about with Reserve Bank of India injecting Rs 18,000 crore of liquidity. Developers say the move will cut home loan rates and boost demand significantly.
RBI has cut the short-term lending rate called repo by 0.25 per cent to 7.75 per cent. This means that it will reduce the borrowing cost for individuals and corporate. RBI also cut Cash Reserve Ratio by similar margin to four per cent. The reduction, which is the portion of deposits that banks have to park with RBI, would improve the availability of funds.
Analysts said real estate players have been seeing inventory pile up and unfinished projects owing to high borrowing costs. Individual buyers too have been fence sitting due to high rates and weak economic sentiments.
According to Knight and Frank estimate, residential sector launches have declined 30 per cent in 2012 compared to 7 per cent in 2011. Banks’ credit exposure to developers has fallen from its peak growth rate of 23.21 per cent in June 2011 to 3.88 per cent as per the latest reported data on Sep-2012.
Developers are cautious of launching projects as the gap between the launch and the absorption numbers reduced to 32,000 units in 2012 compared to 82,000 and 94,000 units in 2010 and 2011, respectively.
Pranab Datta, Chairman, Knight Frank India, “The rate cut coupled with the lower CRR should provide great relief to real estate industry that has been reeling under the burden of huge debts on one side and poor cash flows caused by slowdown in sales for sometime now.”
Sanjay Chandra, MD, Unitech Ltd, “This is a small but necessary positive move to boost investment as well as demand in the sector. These growth oriented monetary measures combined with the Government's fiscal measures should augur well for the industry in 2013”.
R.K. Jain, Executive Director, Wave Infratech, “As inflation has somewhat subsided, we expect home loan interest rates to get cheaper, which will help the housing demand among end users and investors.”
Shobhit Agarwal, MD, Capital Markets, Jones Lang LaSalle India, said, “… Industrial activity, which has been sluggish last year, should bounce back in the medium-term. Inflation should also witness some easing with at least the supply side being addressed and cost-push pressures being mitigated.”
Confederation of Real Estate Developers Associations of India however felt that the repo rate cut by 25 basis points is “just not enough“.
“What we need is creation of a robust supply to curb inflation, for which RBI needs to continue to ease fund supply position, month-on-month and quarter-on-quarter for realty sector,” Lalit Kumar Jain, CREDAI National President, said.
Anshuman Magazine, CMD, CBRE South Asia, said, “The industry expects more such steps to improve liquidity and reduce interest rates to increase investments.”