The RBI rate cut is a boost for the real estate sector

Last Updated: Wed, Aug 02, 2017 19:07 hrs
Real Estate

The repo rate has been reduced by 25 bps to 6.0 per cent, reflecting the slightly accommodative stance that the Monetary Policy Committee has taken as it agreed that headline inflation has come down significantly. While many inflation upside risks have not manifested themselves as yet, the MPC feels that inflation may trend upwards going forward based on farm loan waivers, states passing on increased salaries / allowances  and expected pressures on food inflation. The RBI remains more committed to keeping inflationary pressures under check.



It also highlighted how longer approval process under RERA is likely to delay launches and have an impact on growth of construction and ancillary activities. It is also relevant to note that there may not be another rate cut during the remainder of the year as the RBI will continue to look at inflation headwinds. This stance of the MPC will also be important for global investors as the current stable interest rate regime in India will allow for better investor returns in India for global investors. This should keep investors reasonably attracted towards India.

There is already enough surplus liquidity in the system and the policy change may not result in a greater impact on real estate sentiment. However, it must be remembered that buyer sentiment has been impacted by a number of variables, including overall lack of affordability in the larger cities and the slowdown in IT/ITeS-driven employment. RERA has also induced a go-slow in fresh launches, which means that there will be less fresh supply on the market. Consequently, prices are unlikely to reduce further - and more than interest rates, it is property prices which affect buying decisions. Nevertheless, this monetary policy announcement sends out positive signals to global investors, who are already showing renewed interest in Indian residential real estate on account of the transparency reboot brought on by RERA and GST deployment.

Anuj Puri, Chairman - ANAROCK Property Consultants

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