Real estate developers have largely witnessed subdued demand and low absorption of residential properties in the past few years, but with the latest reduction in the RBI repo rate and few banks launching repo rate-linked home loans, market players feel that the traditional festival demand would witness a slight uptick this year.
The Reserve Bank of India's (RBI) Governor Shaktikanta Das on Friday announced a 25 basis points (bps) cut in the repo, or short-term lending rate for commercial banks, to 5.15 per cent.
"The RBI decision to further reduce the repo rate by 25 basis points to bring it to 5.15 per cent gives the real estate sector a reason to cheer at a time when it expects sales to improve in the ongoing festive season," said Dhruv Agarwala, Group CEO, Elara Technologies.
According to Rajat Goel, Joint Managing Director, MRG World, the repo rate cut is in sync with the government's recent measures, including a reduction in the corporate tax, to promote credit offtake in order to boost economic activity during the festive season amid the ongoing slowdown.
Although the monetary policy committee (MPC) has decided to go for rate cuts in its last five successive bi-monthly meets, the transmission of these reductions to retail loans have been slow and not in proportion to the repo rate cuts, which remains a cause of concern for retail borrowers.
One of the positive factors has been that banks have started to come up with repo-rate linked home loans.
Moreover, there have been a slew of measures announced recently to support the sector, including capital support for housing finance companies and creation of a Rs 20,000 crore corpus with half the investment coming from the government.
Market players are of the view that the rate cuts along with these measures should aid the ailing sector.
Prashin Jhobalia, Vice President for Marketing Strategy at House of Hiranandani, says that festive occasions still govern the buyers' psyche across the country with several property seekers advancing or postponing their purchase decisions to coincide with the festivals.
"Potential home-buyers associate the festive season with security and prosperity, making them sanguine about lucrative offers available in the real estate market through this period," Jhobalia said.