- Date : 06/04/2019
- Read: 3 mins
It is expected to incentivise sales on one end, while making borrowing cheaper for developers on the other
The RBI’s Monetary Policy Committee (MPC) spearheaded by Governor Shaktikanta Das announced a 25 basis point (0.25%) cut during the first bi-monthly review of new financial year 2019-20, bringing the repo rate down to 6%.
The revision was expected by industry experts considering certain key data points such as the Index of Industrial Production (IIP) that came out recently have not been the brightest.
The RBI green flagged the revision considering the current level of inflation is under control leaving enough headroom to accommodate the rate cut, and hence providing impetus to business liquidity and investment cycles.
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What does this mean for the real estate sector?
The rate cut rings well with real estate developers and potential buyers both. Along with the recent cut in GST rate for home buyers, the revision in repo rate is expected to bring fillip in the sales velocity that that real estate sector has been awaiting for a while.
The rate cut hopefully passed down by the banks to home buyers will directly translate into lower EMIs on mortgages and hopefully incentivise sales on one end, while making borrowing cheaper for developers on the other.
The RBI has also formed a committee that will assess and propose measures to develop the housing finance securitisation market. The committee will look to align the Indian markets with international best practises while improving availability of secondary market corporate loans that will help deepen the market.
How the RBI has managed the repo rate?
There have been no downward revisions in the repo rate since August 2017. However, there have been two hikes of 25 basis points each in June and August 2018. The repo rate has since remained unchanged from the previous monetary policy announcements in October and December of 2018.
However, this is the second time in 2019 the MPC has revised the repo rate. Earlier in February, the rates were reduced by another 25 basis points during the bi-monthly monetary policy review. Since the actual inflation since the last review has been below expectations, it has provided enough space for the second revision in less than two months.
What does the future of Indian real estate market look like?
The reduction of GST from 12% to 5% has given significant margin to the Indian consumers’ purse. Now the back-to-back repo rate cuts come as an added sweetener for the auspicious festival of Gudi Padwa – an important period for the real estate market.
After a sluggish performance since the last three years, the Indian real estate markets have shown some signs of recovery. The top three residential markets viz; Delhi-NCR, Bengaluru and Mumbai have seen an improved year-on-year growth in sales of 71%, 17% and 10%, respectively as compared to the performance in the previous year. Read this recent news on Supreme Court’s decision on “Unreasonable Delay” that can bring relief to home buyers.