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Rate cut not enough, real estate firms want banks to pass on its benefits

5 Dariya News

New Delhi , 06 Jun 2019

 Grappling with weak demand, real estate companies welcomed another rate cut of 0.25 per cent by RBI, but linked revival of the sector with banks  passing on the benefits to consumers.While reduction in key lending rate is aimed at lowering EMIs for consumers and finance costs for builders, banks' reluctance to transmit the commensurate benefits have been a  major concern in recent months.Ensuring the transmission of rate cuts is a big task now at the hands of RBI.Addressing a press conference after announcing repo rate cut, the central bank governor Shaktikanta Das noted the transmission of cumulative reduction of 50 bps in the policy  repo rate in February and April this year was 21 basis point to the weighted average lending rate (WALR) on fresh loans.In response to the repo rate cut on Thursday, ANAROCK Property Consultants Chairman Anuj Puri said that the apex bank will need to ensure that this actually happens at the  ground level since there has been little evidence of such transmissions in the recent past."As for the housing sector, this rate cut may send only positive notional signals. 

Its real gain can be realised only if banks pass on the benefits to actual home-buyer borrowers,"  Puri said.Ramesh Nair, CEO & Country Head, JLL India agreed, saying the repo rate cut is likely to have a direct impact on the real estate sector, provided the banks, in turn, transmit the  same by a corresponding reduction in lending rates."It has been observed that, despite 50 bps reduction in repo rates by RBI in the previous two reviews, the mortgage interest rate has remained sticky. As a result, the required  benefit of the rate cut has not reached the home buyers," said Nair.Given that real estate sector has considerable multiplier effect and potential to create jobs, the government has taken various measures to revive it. Besides sops in the last  budget for affordable housing segment, the applicable GST rate has also been brought down."There is a slight reform in liquidity issues in the sector after two back-to-back rate reductions, and a cut-down for the straight third time will definitely undertake the liquidity  shortfall in the sector at large. We expect more such actions by RBI on the liquidity front," said Rohit Poddar, Managing Director, Poddar Housing and Development Ltd.

 

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