The Reserve Bank Of India (RBI) provided a much needed respite to the public and the sector by announcing a 25 basis point reduction in the repo rate this Thursday. This drop in the rate is RBI’s first positive step of this year which has brought the interest rate down to 7.75 percent from 8 percent previously. This move has been greatly affected by the slowing inflation rate along with government’s efforts on containing the fiscal deficit. RBI has also showed signs of cutting down this rate further if the inflation continues to ease and government’s progress on controlling the fiscal deficit is achieved. The real estate sector and public has largely welcomed this move, predicting a better demand for property this year.
The real estate sector which has been undergoing a slowdown over the last few years might see a major transformation, and the rising inventory levels across the nation will be curtailed. It has been observed that whenever repo rate has been decreased, a strong wave of positive sentiments is spread across the public which helps in the creation of demand. Apart from few prime locations, not many cities have witnessed a strong capital appreciation due to a hyper fall in demand. This move is likely to revive the sector back as now a cycle has started where reduction of rates will be on the cards due to slowing inflation and other efforts by the government to reduce the liabilities. Mr. Mahipal Singh Raghav, CMD, MMR Group states that “A no rate change in December last year, consistently decreasing inflation and a much slower WPI and CPI recently provoked the RBI to reduce the rate. Although, a 25 basis point reduction won’t be much, but a series has begun here which will help in the generation of positive sentiments in the market. The effects will become visible in the market by third or fourth quarter this year, as customers will now be gearing up for investment”.
Mr. Kushagr Ansal, Director, Ansal Housing says “The economic recovery has begun and this move is a valid proof for the same. The effects will be quickly prominent for the commercial real estate category and leasing; as the housing demand will pick up by the end of this year”. Adding onto Mr. Ansal’s thoughts, Mr. Rajesh Goyal, MD, RG Group believes that “If the present inflation rate and variations in inflationary expectations continue to occur, and fiscal developments are encouraging, a positive change in the monetary policy stance is likely to continue further as well. The market sentiments are on the move and this reduction in interest rate will surely result in creation of a pool of demand which will help this sector to perform better. The rate is likely fall down further if this economic condition persists”.
Mr. Prithvi Raj Kasana, MD, Morpheus Group says “The new government has spent a good amount of time at the centre now and is very well aware of the economic condition of the country. Last year December also, the interest rates were kept unchanged which proved to be a very welcoming move and this year already a down by 25 basis points is an impressive move. This will help in forming positive sentiments across the market which in turn will create higher demand for property in near future.
Mr. Rupesh Gupta, Director, JM Housing says “Aided by dipping global oil prices, India’s wholesale price index for December went up just 0.11 percent year-on-year, after staying flat in November. Though this early move was a bit unpredicted, aggressive drops in rates were well anticipated over the course of the year to assist India’s economy out of a furrow, with growth rates stressed to get better from their fragile level in a quarter century. This move will now encourage investors and homebuyers to invest in the market, thereby reviving the sector from a severe drought”.
Mr. Deepak Kapoor, Director Gulshan Homz says “Developers and potential customers had this on their wish list and RBI has bought an early surprise for the public. The commercial property market will receive an immediate boost from this decision whereas; homebuyers will start increasing demand by late this year or first quarter next year. The inflation rate and fiscal deficit is getting under control which is a strong sign that RBI might even lower these rates in the upcoming 2-3 quarters”.
All in all, the market sentiments will drastically improve now and everyone is more eagerly waiting for the union budget to come out. With this sudden motivating move, the market is all set to perform better and a favourable budget for the sector might be on the cards.