As expected by the industry, the Reserve Bank of India's Monetary Policy Committee (MPC) voted unanimously to keep policy rates unchanged at its bi-monthly meet. The repo rate--rate at which RBI lends money to banks-- is at 4 percent, while the reverse repo rate -- the rate at which RBI borrows money from the banks--unchanged at 3.35 percent. The repo rate has been unchanged at 4 percent for the sixth consecutive policy.
Had it not been for the pandemic the RBI would have definitely taken a different stance for the benchmark rates today, said Anuj Puri, Chairman, Anarock Property Consultants. He said, considering the rate at which inflation is rising presently in the country, the RBI would have sought to increase the key rates. He termed the MPC decision as 'positive' for home loan borrowers as the floating retail loan rates (which are directly linked to external benchmark repo rates) has been at the lowest level of the last two decades. The continuation of this low interest rate regime works very well for all borrowers as the environment of high affordability is likely to continue for some more time, he said.
The RBI has reinforced its reviving and sustaining growth philosophy which is seen in its keeping the policy rates unchanged, said industry observers. The policy stance is a logical step to support the actual GDP growth of 1.6 percent that was reflected in Q4 FY 2020-21. The forecast of normal monsoons is expected to result in agricultural sector growth and drive the rural demand. The incipient recovery in the global economy has also increased exports, which is expected to provide a fillip to the economy. However, the growth is likely to be impacted by the downside risks due to the after-effects of the second wave of the pandemic, said Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL. "We believe that low home loan interest rates, realistic property pricing, the focus of developers on project completion and economic recovery will take the residential sales in all likelihood to better levels than 2020." he said.
Thanking the RBI for continuing with their accommodative stance, Pritam Chivukula, Co Founder & Director, Tridhaatu Realty and honorary secretary, CREDAI MCHI, urged the Central Government to address the deteriorating health of MSMEs and various other sectors which have been severely impacted by the second wave of the pandemic. "The low interest rates have been a crucial factor in the revival of the demand in the real estate sector. Looking at the record transactions in the previous quarters where the homebuyers took advantage of the stamp duty benefit before the March deadline, we urge the State Government too to reconsider their decision on the stamp duty waiver in interest of the homebuyers again," he said.
The Guardians Real Estate Advisory Chairman Kaushal Agarwal argued that keeping in mind the disastrous COVID-19 second wave, a slight reduction in the key rates would have been widely celebrated. The reduction would have helped spur growth in demand for real estate assets, which has been severely hit as a result of the pandemic and subsequent lockdowns. ‘’Apart from the reduction in stamp duty charges in some parts of the country, the all-time low housing loan rates have given the much-required fillip to sales activity in the last couple of quarters. With the temporary reduction in transaction costs being withdrawn, in states like Maharashtra, the expectation amongst stakeholders of the industry is that the banks should now further sweeten the lending rates, at least till such time that the economy gets back to the pre-COVID levels," he said.
The real estate always hopes for lower interest rates. But home loan interest rates have gone down substantially in the recent past. "Homebuyers will continue to take advantage of the lowest ever home loan interest rates and with the emerging need, the demand for housing is going to sustain as it is a safe-haven asset and many fence-sitters will take the plunge and make the purchase once the situation normalizes," said Ramani Sastri - Chairman & MD, Sterling Developers Pvt. Ltd.
But some hope for a rate cut as they believe it would have given a boost to current demand uptick that we have seen recently. Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group (luxury homes) said, "Going forward, we would also like to see reduction in stamp duty & registration charges to push demand further in the real estate sector that forms the backbone of several other sectors. We urge the government to introduce measures that truly uplift the real estate sector which also contributes significantly to the country's economic growth."
The rise in steel prices has impacted the realty sector, said Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani. In such a scenario, an unchanged repo rate makes more sense than an increased one which would have added more pressure on the sector. "There was a need for stimulant policy measures that would enhance liquidity for the sector, ease credit provisions and increases buyer’s confidence. Any announcements in these forms would have been much appreciated," he added.
That the RBI kept the repo rate unchanged is a 'big positive' for the housing sector, said Amit Goyal, CEO, India Sotheby's International Realty. This is despite the fact that the retail inflation reflected by the Consumer Price Index has remained elevated, he said. "From a home buyer point of view, this effectively means that the interest rates on loans will continue to remain at a historic low. We believe RBIs goal to maintain the liquidity and support economic growth in the country through lower interest rates will be crucial for recovery from the second wave of the pandemic," Goyal said.
The RBI's move to keep repo rate unchanged will generate employment in the realty sector and consequently economic activity, according to Anuj Khetan, Director, Vijay Khetan Group. "With the interest rates at a record low, the Government will continue taking affirmative measures as long as it is necessary to revive the economy and mitigate the impact of the second wave of the pandemic," he said.
While repo rate will continue at 4 percent and reverse repo rate at 3.35 percent amid Covid-19 uncertainty, most banks have used this as the benchmark for their loans. A continuation of this low interest rate regime works well for borrowers, said Ram Raheja - Director, S Raheja Realty. With no hike in repo rate, homebuyers can plan for a home loan in the near future while also getting enough time for their home buying process and still can get loans at prevailing low rates.
(With inputs from Jescilia K)