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RBI Monetary Policy: Experts See Boost to Housing Sector. Why?

The decision to keep the repo rates unchanged coupled with the RBI Governor's statement on revival of Indian economy has been widely welcomed by the experts.

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The Reserve Bank of India's (RBI) Governor Shaktikanta Das announced on October 9 that the Monetary Policy Committee (MPC) has taken a decision to keep the repo rates unchanged at 4 percent. The RBI Governor also announced several new measures to be undertaken after the newly-constituted MPC concluded its deliberations that began on October 7. 

Das said that the RBI will introduce on-tap targeted long-term repo operations (TLTRO) for banks to borrow up to Rs 1 trillion from the window and invest in corporate bonds and other debt instruments of certain sectors. The on-tap TLTROs will have tenors of up to three years at a floating rate linked to the policy repo rate and the scheme will be available up to 31 March 2021, he said.  

Some of the additional measures include rationalisation of risk weights to all new housing loans until March 2022 and the extension of the scheme for co-lending to all NBFCs and HFCs. This move is expected to ease credit availability for the real estate sector.  

ASSOCHAM President, Dr. Niranjan Hiranandani said RBI’s 9.5 percent contraction forecast was much anticipated and that decision to rejig home loan rules would provide boost to the real estate sector. 

Shishir Baijal, Chairman & Managing Director, Knight Frank India said, "There is optimism in the governor’s statement who is expecting a revival of the Indian economy earlier than expected by most. We echo the RBI sentiments of an early and measured recovery of the economy. The growth in the economy has also been reflected in the real estate activities of the last quarter where both residential as well as commercial markets have seen a sharp increase in activities." 

Welcoming the RBI's decision, Anshuman Magazine, Chairman and CEO, CBRE India, South East Asia, Middle East and Africa said: "RBI's decisions to relax LTV guidelines and rationalize risk weights for home loans will further encourage homebuyers and their review of the co-origination model between banks and NBFCs and extended the scheme to all NBFCs (and banks) will improve the flow of credit in the economy. We are hopeful that these measures will strengthen recovery in residential demand and support construction activity as well.”  

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com also said that rationalising risk weightage on home loans and linking it to Loan to Value (LTV) ratio will effectively result in higher credit flow to the real estate sector. Agarwala termed it as a "positive news for the sector". "Also, the hike in credit limit for retail exposure by a single lending entity from Rs. 5 crore to Rs 7.5 crore is a welcome move that will immensely help both retail as well as small businesses," said Agarwala.  

Anuj Puri, Chairman, ANAROCK Property Consultants said a reduction in repo rates "would have given an added boost just before the upcoming festive season".  "But with consumer inflation still trending at the upper end of the apex bank’s band, and the policy repo rate also being substantially reduced by 140 basis points in 2020, today’s move was expected," Puri explained.  

Rajni Thakur, Economist, RBL Bank said in many ways RBI’s announcements took the uncertainties away, including that of growth outlook for the year. Also it has assured the market of RBI's continued support. Commenting on the specifics, Thakur said, "Higher Open Market Operations (OMO) size of Rs 20,000 crore and OMOs in SDL are continuations of RBI’s persistent efforts to keep rates low and assure financial markets of ample liquidity. In addition, announcements regarding on tap TLTROs (Targeted Long-Term Repo Operations) and revised limits for risk weights will nudge the banks and NBFCs to lend further."  

Soon after the RBI announcement, the Indian government bond prices witnessed sharp a rally.   

Reacting to the RBI announcement, Ankit Kansal, Founder & MD, 360 Realtors said: "Now all eyes would be on how the government plans to combat the economic slowdown and boost demand. A host of steps in the form of capital injection, refinancing of banking institutions, policy impetus, subsidies, and discounts are required to see a faster recovery," he added.  

Krish Raveshia, CEO, Azlo Realty said the housing market needed more steps. "The real estate sector needs further ease in policy rates, a cut in interest rates is a direct stimulus for homebuyers as it reduces the overall cost of buying a real estate unit, the same is evident in the September sales data which saw a spike post the Maharashtra government reduced the stamp duty rates," he said.  

Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group, a leading luxury real estate developer known for their luxury holiday homes in Goa, said: "This festive season is an opportune time for the investors to look at Goa seriously for a second-home investment and destination for luxury homes. We remain optimistic for this season too. We have already witnessed an increase in the number of enquiries for our luxury villas and properties in Goa that offer safety, privacy and luxury, all in one space." 

Ankush Kaul, President (Sales & Marketing) - Ambience Group said among other, the homebuyers in the affordable, mid-income and upper middle-income housing segment will benefit immensely from RBI’s announcements on the real estate sector. 

Analyst Speak 

According to Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities, the MPC clearly delivered accommodative moves through non-interest rate tools. "As an endeavor to lower the yields in bond markets, the central bank announced to expand weekly OMO purchases, include State Development Loans as part of its purchases and TLTRO of Rs1 trillion. We believe, over time, Gsec 10-year yield will drop closer to 5 per cent," he said adding that he sees a possibility of further scope of 25-50 basis points cut in repo policy rates. 

Naveen Kulkarni, Chief Investment Officer, Axis Securities said that the macro outlook for FY21 looked muted with a decline forecast in GDP by 9.5%. “But buoyancy in rural demand and sector specific improvement could lead to a gradual recovery," he added.  

Sharing her views, Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co. said: "For the first time since COVID, the Governor’s statement has a sense of tides turning. While the real impact is yet to be seen, the “on tap” TLTRO and easing of contraction in certain sectors seem to indicate “winds of change”.  

While the interest moratorium saga continues to play out in the courts, the continuing reliefs by RBI will certainly ease short term liquidity pressures."  

In spite of very high contraction expectations, RBI Governor also highlighted many silver linings in the economy which gives hope for a better Q4 and FY 21-22. "The rural economy, especially the Agri sector, thankfully is continuing its good run giving some respite to all the stakeholders including the Government," said Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors. He said Q4 would be the period to watch out for and the Government. "The RBI should gear up to provide all the support during that period. In the next review meet as well, no change can be expected unless there is a drastic change in the ground situation, especially on the inflation front," he added.  

Dr. Joseph Thomas, Head of Research - Emkay Wealth Management said, it is not the rate cuts but the liquidity provision that matters today, when the market rates on short term bank and corporate papers have touched low single digits. "The positioning of portfolios should continue on the same lines with an accent on the short and mid sector. The expected GDP contraction for FY 21 is placed at 9.50%, which is also quite close to most of the market estimates, with the Q4 number must likely turning positive number,” he added.  

Developers Speak 

Achal Raina, COO, Raheja Developers said the extension of lending limit for retail exposure from Rs 5 crore to Rs 7.5 crore along with reduction of risk weightage on home loans and linking it with LTV ratio augurs well for the real estate sector. Ashish Bhutani, MD & CEO, Bhutani Infra said: “RBI should have taken into consideration the need for liquidity. Like the RBI, we too are optimistic about the economic growth. Having said that we were hoping for announcements that can specifically talk about various sectors and how banks are going to help improve the growth.” 

Manoj Gaur, MD, Gaurs Group and Chairman, Affordable Housing Committee, CREDAI (National) said: “We understand the reasons for keeping the repo rate unchanged. However, one favorable measure for the real estate is that the new housing loans will be linked on to loan to value (LTV). It will help the buyers get loans easily and realize their dream of buying a home. The buyers are already coming back to the sector and the coming festival season would be a lot better than the previous years.” 

Amit Modi, Director, ABA Corp & President (Elect) CREDAI Western UP said, "Even though the apex bank kept the rates unchanged, we still believe that there is room for financial institutions to cut down on their lending rates for their customers." 


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