With major regulatory reforms such as GST and RERA being implemented in the country, the Reserve Bank of India has cut the repo rate by 25 basis points after a period of nine months. This has been done to put the residential real estate market back into action and to give boost to affordable housing.
This rate cut announcement does not mean an immediate reduction in the EMI as banks will take some time to pass on the benefit to the consumers. It also does not mean that home buyers will rush to purchase homes immediately. This rate cut is supposed to have a long term impact on the real estate sector. The Monetary Policy Committee headed by the RBI Governor noted that there was an immediate need to reinvigorate the private investments, clear the bottlenecks in infrastructure and provide a thrust to the affordable housing schemes. The Government and the RBI are working in close coordination in order to resolve the corporate borrowers and recapitalize public sector banks within the target of fiscal deficit. The efforts are expected to restart the credit flows to productive sectors as the demand grows.The longer approval process under RERA is likely to delay the launches and have an impact on the growth of construction sector. With the real estate prices remaining stagnant, the interest rate showing a decline and RERA in place, the confidence of the home buyers will be back in the market. The move to cut rates is bound to increase the sales traction and initiate a growth in the residential space.
The decision to cut the repo rate by 25 points to 6 percent is a 7 year low. This is in line with the expectations of the industry amidst the inflationary trends. The rate cut will make housing loans cheaper and also help credit offtake across the housing sector. In the long term, it will provide an impetus to the segment and help in bringing about a change in the housing sales. Along with other structural reforms, this announcement will enhance the activity levels in the real estate sector. GST is expected to boost the demand for residential housing which will benefit the developers and the buyers. Along with the favorable measures of GST, a reduction in the repo rate will act as a catalyst for investment revival. It will eventually impact the economy in a positive manner and help boost the credit flow.
The market was calling for measures that encourage the investment to boost the numbers across the real estate segment and with the installation of a regulatory regime for the sector, it is expected that the move will keep the stimulus high for the potential homebuyers to invest as well as to benefit the borrowers. With a lower cost of borrowing for home buyers and a low cost of construction for the developers, a regulated market will make home loans cheaper and ensure that the real estate sector is ripe for a comeback.