RBI cuts REPO rate. Good news for the real estate sector?

RBI has cut the REPO rate for the fourth time in this year. Mumbai Live analyses the impact on the real estate sector.

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Shaktikanta Das, Governor of Reserve Bank of India's Monetary Policy Committee (MPC) today announced the REPO rate cut by 35 basis points or 0.35 percentage point to 5.40 per cent. With this cut, the REPO rate now stands at the lowest in over nine years. One of the major reason for this cut is to stimulate economic growth.

With this cut, it is expected that the loan rates would come down and that in turn will help the real estate sector. Talking to Mumbai Live, Karan Bathija, real estate expert, 

“The news [of REPO rate cut] is a huge positive for the real estate sector, which is going through a major liquidity crunch. However, this is the fourth rate cut in this year. In February it was 6.25% and today it is down to 5.40%. But if we see home loan rates, they have consistently be higher than 8.5%. Banks have not passed on the benefit to the consumers. Hopefully, they will pass on benefit of this to borrowers, so that there is some liquidity for the real estate players. Because if the banks don’t do this, then the government might have to look at a bailout for the entire sector across the country. This move will also help in making housing a little more affordable. It is a short term move to tackle the liquidity crisis and as the FDI increases, RBI will most likely increase the REPO rate.”

Niranjan Hiranandani, Senior Vice President, ASSOCHAM and National President- NAREDCO was also of a similar opinion as he shared, 

“If bank are able to pass on this reduction in the prime lending rate to consumers, budget housing demand may also improve further. The rate cut aims to encourage consumer spending in a scenario which has been rather gloomy, given the economic slowdown and declining consumption. To help NBFCs, the Reserve Bank of India has announced harmonization of single counter party exposure limit for banks’ exposure to single NBFCs with the general single counter party exposure limit. Under the revised guidelines, banks can now take exposure of 20% of their Tier-I capital in one NBFC from 15%. NBFCs can now on-lend to the priority sector through banks”.

Mani Rangarajan, Group Chief Operating Officer, Housing.com, Proptiger.com, Makaan.com and Fastfox said,

This cumulative 110 bps rate cut in the last four policy reviews, comes at a strategic timing since the sector is waiting for the festive season to hopefully boost sales and sentiment. How far these rate cuts will succeed in spurring consumption, is something only time will tell. However, there's no denying that in the mid-income and affordable housing segments which are very price sensitive, these rate cuts, can boost sentiment and sales, provided they are passed on to the end-users by the banks.

In the month of June, when RBI had announced cut in REPO rates, it had also slashed the gross domestic product (GDP) growth target for the current financial year to 6.9 per cent from 7 per cent.

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