Policy rate nearing a decade low of 5.15% with strong focus on growth; to push real estate growth momentum further

 – Ramesh Nair – 

The 25 bps rate cut is definitely a welcome move showing the alignment of monetary and fiscal policy initiatives in the backdrop of a downward revision in the GDP growth to 6.1% for FY 20 . In sync with the general market sentiment, the fourth consecutive rate cut during 2019 by the RBI is aimed at uplifting the growth trajectory of the Indian economy. Riding along the same track, the real estate sector, too, is likely to witness accelerated sales owing to favorable policy reforms and the gradual transmission of rate cuts to end-consumers through lowering of mortgage rates.

The rate cut of 25 bps delivered by the RBI in its fourth bi-monthly monetary policy meeting is in line with the market expectations. This move is in sync with the government’s efforts to accelerate economic activity. Globally, the efforts are being directed to revive growth through rate reductions. Despite upside risks to inflation expectations due to volatile crude oil prices and currency fluctuations, the decision to revive growth needs applause. This step has complimented the series of reforms that were introduced recently.  

The consecutive rate cuts have been a succor for the real estate sector thereby making it the most opportune time for buying homes. This has been reflected in the continuous improvement in the residential sales that registered a 14% Y-o-Y growth in sales during January- September 2019 as compared to the corresponding period in the previous year.

The recently announced policy incentives such as the relaxation of ECB guidelines and linking of interest rate on Housing Building Advance to G-Sec yields will help to solve the liquidity issues plaguing the sector. In addition, the creation of a dedicated fund of INR 10,000 crore with an equal contribution from private investors to provide last mile funding to stuck projects is expected to act as a catalyst to the sector. Credit re-structuring measures such as the introduction of repo-linked loans will lead to further transmission of rate cuts to end-consumers. This will positively impact the homebuyers’ decisions to buy homes while ensuring higher transparency.