MUMBAI, December 03, 2014: Given the ‘challenging phase’ as a result of the economic slowdown in the past couple of years, the change in Government at the Centre had evoked positive sentiment among all stakeholders in Indian real estate. “The focus of Prime Minister Narendra Modi’s Government seems to be on ‘affordable housing’, and going by Union Urban Development and Housing minister M Venkaiah Naidu’s promise of a turnaround in the real estate sector, all stakeholders in Indian real estate are looking forward to ‘Better Days’,” said Niranjan Hiranandani, MD, Hiranandani Constructions.
“For the home seeker as also the real estate industry, expectations have been high. Given the impact of the past couple of years’ economic slowdown, the need of the hour is measures by the authorities that would result in a ‘turnaround’,” said Niranjan Hiranandani. “Low interest rates on home loans can give a positive boost to real estate, all stakeholders were looking forward to the RBI review to hopefully, enable the same. However, on 02 December, the Reserve Bank of India (RBI) kept the policy rate unchanged – and this was the fifth time in a row. As a result, home loans will not become cheaper. While one understands the need for keeping inflation in check, growth could have been given a helping hand,” he added. Recent data suggested that the situation was ‘in control’, given low oil prices: India's annual consumer price inflation slowed to 5.52 per cent in October, sharply down from a peak of 11.16 per cent in November last year.
“For the housing industry, a rate cut would have helped shore up positive sentiment among home seekers, and in turn, could have lead to increased home buying by end-users,” said the MD, Hiranandani Constructions. “From a real estate perspective, there have been indications of ‘positives’ in previous months, be it the announcement relating to REITs or the policy announcement about FDI in real estate – it was expected that a rate cut could have been included in the policy announcement. Media reports also mentioned that Finance Minister Arun Jaitley had pitched for lowering the cost of capital to boost growth. Data suggested consumer inflation driven by low prices of crude oil in the global market was at a historic low. In a scenario where inflation seemed to be largely under control, RBI’s policy review on 02 December could have facilitated cheaper housing loans,” said Niranjan Hiranandani.
“The RBI has suggested a possible softening of stance could happen early next year, if inflation continues to abate and there is an improvement in fiscal health. For real estate, this means another couple of months when the ‘challenges’ continue – the real estate industry is ‘disappointed’, the general feeling in the industry is that the RBI could had been ‘more accommodating’,” added the MD, Hiranandani Constructions.
“If in its next policy review, the RBI comes up with moves that reduces the home loan interest rates, the impact should be positive. In the present scenario in real estate, which some of my friends describe as a ‘low sentiment market’, a change in the rates would have resulted in lower interest rates in home loans. The sales which would have happened, in turn, would have translated into enhanced liquidity for real estate developers – and for the economy, a positive, given that real estate is among the major contributors to the GDP,” said Niranjan Hiranandani.
“The RBI's next policy review is in early February, and like most stake holders in real estate, I too expect the RBI to positively consider moves that would make cheaper home loans a reality - low interest rates on home loans can give a positive boost to real estate,” he concluded.
KEY WORDS: RBI, policy review, real estate industry, affordable housing, Union Urban Development and Housing minister, M Venkaiah Naidu, Prime Minister Narendra Modi, Finance Minister Arun Jaitley, Niranjan Hiranandani, MD, Hiranandani Constructions, home loans.