Mumbai: The cash strapped real estate sector has hailed the RBI’s decision to keep the repo rate unchanged at 5.15% while maintaining an accommodative stance.
Though a rate cut would have been welcomed by the real estate sector as a sentiment-boosting factor, a meagre change in repo rates would have done little to change the situation on the ground.
Previous rate cuts did prompt some banks to lower their interest rates, but that had no significant impact on unlocking real estate inventory.
Under the spotlight this time is the RBI decision to extend the restructuring of project loans by a year. According to Anarock Property Consultants Chairman Anuj Puri, this is a major relief to the real estate sector, which will complement many of the previous initiatives by the government in 2019.
This essentially means that loans for projects, which have been delayed for reasons beyond the control of their promoters, have been extended by another one year, without downgrading the asset classification.
This aligns with the treatment accorded to other project loans for the non-infrastructure sector.
‘‘This is a big move and will bring much-needed relief to the cash-starved real estate sector - to both the developers and the HFCs -- from the liquidity perspective.
It will help ease out the time for maintaining and managing cash flows for cash-strapped developers and help them in completing several projects that are stuck.
That said, it will not address the other main issue in the real estate sector – that of continuing low demand,’’ said Puri.
As per the Anarock report, the top seven cities currently have a total stock of 5.6 lakh delayed housing units worth a whopping Rs 4.51 lakh crore. These units were launched either in 2013 or earlier.
Top cities like the National Capital Region and the Mumbai Metropolitan Region collectively account for 72% of the total stuck housing units across top 7 cities worth Rs 3.49 lakh crore.
FICCI, joint chair, real estate committee, Raj Menda, said that the RBI move will give relief to commercial real estate developers. ‘‘It is a much needed relief and positive policy change.
The government recognition of delays that are beyond control of promoters will ease liquidity pressure due to repayment of debt,’’ he noted.
Goodwill Developers Group Promoter Hakim Lakdawala said, at present, three straight instalment defaults classify the account as non-performing asset which is a burden, hence getting extra time is a good for the industry.
‘‘The RBI’s decision is a big relief for the real estate sector, especially commercial, as the builders will get one more year to concentrate on the completion of these projects and become financially stable,’’ he averred.
NAREDCO vice president Ashok Mohanani observed that the overall real estate sector will see stability in terms of investment and purchase behavior. With this, the infrastructure prices are likely to remain stagnant which will keep the prices stable for real estate sector.
‘‘Though the marketers were expecting a cut in the repo rate along with the restructuring in loans after the Union Budget 2020, the unchanged repo rate will ensure steady growth in the sector at large. Another impetus for home buyers will be the CRR leeway for existing and incremental loans.
‘‘The liquidity measures will lead to improvement in sentiment and anticipation of increased liquidity in the market,” said Mohanani.