For real estate, a rate cut of 35 bps is however insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities, said Anuj Puri, Chairman – Anarock Property Consultants.
On the other hand, demand for affordable housing, which accounted for 2.40 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives, he added.
Even minor downward revisions in interest rates can and do make a difference in affordable housing. If banks transmit this reduction in the prime lending rate to consumers, budget housing demand may improve. Likewise, housing demand in tier 2 and tier 3 cities, where property prices are less prohibitive, may see an uptick. According to Puri, today’s rate cut, even if adequately transmitted by banks, will not do much for mid-income housing in tier 1 cities where the main concern is unaffordable property prices and not interest rates.
Previous rate cuts in 2019 did prompt some banks to lower their home loan interest rates by a certain margin. The RBI is putting in concerted efforts to establish a mechanism for effective transfer of repo rate reductions to actual consumer lending rates. This fact by itself bodes well for future acceleration of consumer spending as it means that future repo rate cuts will be transmitted more proactively.
Global slowdown
“The decision to cut down rates was expected owing to the ongoing liquidity crisis and muted economic growth. This said, the RBI has taken the cue from the government’s Union Budget 2019-20, where it gave elbow room for fiscal stimulus to NBFCs. Additionally, the global slowdown followed by the US Fed lowering its rate provided yet another indication to the Central Bank,” said Ramesh Nair, CEO & Country Head, JLL India.
He added that “The real estate sector has already registered a 22 per cent Y-o-Y growth in sales in the first six months of 2019 as compared to the corresponding period of last year. Stable real estate prices combined with steadily rising incomes have further uplifted the home buyers’ sentiments in the last few quarters. However, the growth trajectory of the real estate sector ultimately depends on the successive transmission of rate cuts to the end consumers.”
Gagan Randev, National Director, Capital Markets and Investment Services at Colliers International India, said “Much needed move by the RBI to improve sentiments of the Real Estate industry. While this would lower existing borrowing costs to some extent, this needs to be followed up with increased lending to the sector as well as liquidity to the better placed NBFC’s and HFC’s. Now banks need to ensure that the cut impact is passed on to borrowers.”