Unchanged Repo Rate: Home buyers, developers unhappy with RBI diktat

The recent RBI decision to keep the Repo Rate unchanged at 6.5% (and the reverse Repo at 6%) has generated mixed feedback from industry experts. Announced more as a cautionary measure in the very first quarter of the new financial year, the move is expected to impact the realty industry in varying terms.

Home buyers like Mohit Biswas, a Mumbai-based IT professional who was expecting a rate reduction this time round is expectedly more than a little disappointed. Having firmed up plans to buy a home this year, Biswas was convinced that with key drivers like the ongoing slump in global crude prices and India’s growing GDP, a rate cut was a definite possibility.

“Given all the complementary factors, I was hoping the RBI would announce a rate cut this round bringing them down to the 7-8% range,” admits Biswas. “This would have helped potential home buyers like me avail of a home at a reasonable rate of interest and achieve their dream of buying their home. Unfortunately, that has not happened and I will have to wait for the next announcement.”

While Mohit’s disappointment is understandable, sources in the RBI have justified the decision based on several macro level factors that are likely to impact the Indian economy. These range from a expected rise in global crude oil prices, a delayed monsoon and the rise in retail inflation pan-India.

On the positive side however, the RBI has affirmed the projected growth rates at approx 7.6% for this year, driven mainly by increasing consumption and growing corporate gains. A review of the execution of marginal cost lending rate framework maintained by banks is also on the cards.

Developers and realty experts have had mixed reactions to the RBI decision. Experts like Knight Frank MD, Shishir Baijal have voiced fears that in the aftermath of this decision, the realty industry which has been facing rough weather over the last couple of years, will now take longer to recover.

Others like Ashwin Shah, CMD – Sheth Corp have a different take on the issue stating that the central bank has adopted a cautionary stance given the onset of the monsoons. However he admits that a rate cut at this stage would have had a positive impact on home buyers in terms of access to cheaper home loans.

Sheth further points out that despite the approx 150 point rate reduction by the RBI since the beginning of last year (2015), banks had reduced rates only by 70 bps, effectively hindering customers from getting the full benefit of reduced rates.

To ensure that the realty industry gets back on the growth track and home buyers get a fair chance to buy their dream, banks need to pass on the full benefit of reduced rates to their customers, reiterates Sheth.

It’s a view endorsed by fellow developers like Nahar Group’s vice chairperson Manju Nahar who feels it’s time banks took advantage of the opportunity and passed on the full benefits of lowered rates to their home loan customers.

Expressing faith in the country’s economy that recently clocked an impressive 7.9% growth rate in the first quarter of this year, Nahar feels that RBI’s decision to keep the rates unchanged at 6.5% will create more employment opportunities, assist in controlling inflation and create a positive sentiment across the country.

While views on the issue continue to differ, the bottom line remains that the move is unlikely to do any favours to the struggling realty sector, more so the residential realty segment which is already facing a slew of serious issues ranging from a sharp slump in sales to unreasonable delays in project completion caused by a acute liquidity crunch among developers.