RBI rate cut expected to revive housing sales during festive season
Lowering of key interest rate by 0.50% to support Housing for All initiative
In a surprise move, the Reserve Bank has lowered the key interest rate by .50%, the biggest cut in over three years, to bolster the realty sector that reacted by saying that it will go a long way in reviving housing sales and support the government’s Housing for All initiative.
With a view to improve affordability of low-cost housing for economically weaker sections and low income groups and giving a fillip to Housing for All, while being cognizant of prudential concerns, the apex bank also proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans.
The minimum risk weight applicable on individual housing loans is 50% at present.
“This is a welcome move and will provide the necessary support to the economy as well as the real estate sector. The RBI’s proposal to reduce the minimum risk weightage on individual housing loans for low cost homes will help revive sales apart from lending support to the government’s Housing for All scheme,” says Anshuman Magazine, chairman and MD, CBRE South Asia Pvt Ltd.
The Apex bank’s decision to reduce the interest rate suggests that it has set aside its cautious stance and assumed a bold approach, say realty experts.
As opposed to the market’s expectation of a 25 basis points cut, the RBI has delivered an astounding 50 basis points reduction. With this, it has clearly abandoned its cautious babysteps approach and assumed a bolder stance, obviously because the current economic fundamentals provide it with the room to do so, says Anuj Puri, chairman and country head, JLL India.
“Given the magnitude of this step, I do not think any further rate cuts are likely in this financial year, especially since the RBI foresees a moderate growth in inflation rate in the interim months. For the affordable housing sector, the outlook is nevertheless bright, since the RBI governor has made provisions for lending to this sector to become less stringent and broader in scope,” he says.
“With the latest interest revision, t he RBI has cut repo rate by a total of 125 basis points this year to a four- year low that should act as a catalyst to revive sentiments in the real estate sector. At a time when Indian cities are witnessing subdued housing sales, this correction in prime lending rates would help stimulate home buyers’ interest and spur homebuying decisions,” says Sanjay Dutt, managing director, India, Cushman & Wakefield. Developers hope that banks will pass on the benefit of the rate cut to the customers. “We are hopeful financial institutions would follow suit and pass on the benefits immediately to the customer,” they say. In one of the largest office space transactions, Godrej Properties has announced the sale of 4.35 lakh sq ft in its commercial project at BKC, Mumbai for about ₹ 1,480 crore.
Sources said the office space has been purchased by pharma company Abbott India. In a filing to the BSE, Godrej Properties informed that “the company has entered into a transaction for selling 4,35,000 sq ft of saleable area at its commercial project Godrej BKC in Bandra Kulra Complex ( BKC) Mumbai to a single user for a total consideration of ₹ 1,479 crore. This is the highest ever value for any single end-user commercial real estate transaction in India”.
Godrej BKC is a large highend commercial real estate project with approximately 1.3 million sq ft of saleable area. Godrej Properties had partnered with Jet Airways to develop this project, which is expected to be completed and ready for occupancy by mid-2016.