After slashing the repo rate by 135 basis points in the last five monetary policy reviews, the RBI has decided to keep the rates unchanged this time. The real estate industry stalwarts are divided in their opinion. While a few feel the move may prove deterrent for the growth of the realty sector, others opine that the call is imperative to ensure growth in the economy.

The Reserve Bank of India (RBI), in its sixth Monetary Policy review, led by Governor Shaktikant Das has kept the Repo rates unchanged at 5.15 percent this time. This has come at a time when the economic activity is on a downward spiral and the homebuyers, as well as the real estate industry, were expecting another rate cut. However, after a staggering fifth repo rate cut in a row in August 2019, RBI has maintained the status quo this time.

During this fiscal year, the RBI had cumulatively reduced the repo rate by 135 basis points (bps). A further rate cut was expected but rising inflation and reduced economic activity has kept RBI from changing the rate.

The expectations and reactions of real estate industry

Looking at the dismal growth forecast, the real estate industry was expecting a further rate cut so as to ease the liquidity crunch and trigger a revival in the real estate market.

Even homebuyers were expecting a rate cut as the move has a direct impact on the Marginal Cost of Funds-based Lending Rate (MCLR) linked home loan Equated Monthly Installments (EMIs).

Expressing his displeasure over the move, Shishir Baijal, Chairman and Managing Director, Knight Frank India, says, “We expected that the slowing economic growth would take precedence in RBI’s policy decision. Hence, the apex bank’s decision to not slash the interest rate has come as a surprise and a bit of a disappointment to the industry.

Lower interest rate would have helped push up credit demand and investment in the economy, aiding overall economic growth. It would have provided the much-required reprieve to some ailing sectors such as real estate and auto. RBI has probably taken the cautious approach of wait-and-watch to see the effect of past rate cuts, and also to assess the inflation trajectory. With economic growth remaining subdued, there are still chances of a rate cut in the next meeting.”

Echoing similar sentiments of an expected rate cut, Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, says, “The status-quo on RBI's decision to not reduce the rates comes as a surprise and contrary to the industry's expectations, which is skewed on the back of increasing inflation and depreciation of the value of rupee. From an economic standpoint, a cut in repo rates would have had a direct impact on home loan rates. The government had consistently looked at reducing the repo rates to boost demand.” 

“We further hope the lenders will pass on the benefits of the previous rate cuts which will help in the revival of the industry. We believe there is a need to reduce the borrowing cost for the customers to bring in the next leg of demand, which in turn will lead to the much-required growth in the economy. However, all eyes will be on the budget now, where a lot will be expected from the Government. The continuity of reforms under the second term of the current Government is needed to boost homebuyer sentiment,” adds Agarwal. 

Repo rate

Repo rate changes in recent months

While the majority of the real estate industry stalwarts are discontent at the unchanged repo rates, there are a few which have hailed the RBI’s neutral stance.

Commenting on the same, Ramesh Nair, CEO and Country Head-India, JLL, says, “The decision to maintain policy rates augurs well for the economy as the recently introduced policy reforms will take time to pan out and materialise. The economy needs to absorb the impact of the recently introduced reforms and the previous rate cuts. The real estate sector is expected to pick up due to the favourable policy incentives and the faster transmission of previous rate cuts. Moreover, with the inflation already crossing the four percent mark and expected to remain elevated for a few quarters, further rate cuts would have posed an upside risk.”

Expressing the necessity of banks to pass on the benefits of previous rate cuts, Abhishek Jain, Joint Managing Director, Terapact, says, “While the RBI has done its bit in the recent past, it is now critical that banks facilitate a faster transmission of these rate cuts to ensure that the measures reap results, thus strengthening private consumption and spur further investments. Moreover, with the RBI lowering its GDP growth forecast to five percent, this would directly impact banks ensuring that credit flow increases for NBFCs.”

The way ahead

The apex bank has its well-thought reasons behind maintaining status quo on repo rate. A reduced growth forecast of the economy to five percent and rising inflation beyond four percent substantiate the latest move by RBI.

In a nutshell, although the unchanged rates may have come as a surprise to many, a continued rate might have fueled the rising inflation further. All eyes will be on the forthcoming budget and the next monetary policy committee meeting.


Given below are the reactions of a few more industry experts on the RBI’s decision to keep repo rates unchanged –


Sharan Bansal, Joint Secretary, CREDAI Ghaziabad

The real estate industry is disheartened by the status quo maintained by RBI today. With GDP growth plummeting to 4.5% Q2 and RBI cutting down growth forecast for current fiscal to 5% from 6.1% the expectation was that the apex bank will announce another cut to improve consumer sentiment. The real estate is an interest-sensitive sector would have benefited from any cut in policy rates provided the government looked after it's passing down to the consumer. But, to our surprise, RBI has maintained status quo mainly to check rising CPI inflation. The monetary stance will adversely impact chances of revival of the demand in the immediate period.


Amit Modi, Director, ABA Corp & President (Elect), CREDAI Western UP

By maintaining the status quo, the RBI has given a surprise after a long time. Unfortunately, it is contrary to our expectation. The real estate industry was assuming a 25 bps cut. Most of the economist also had similar expectations. But it seems the inflationary expectation has outweighed growth projections. In the last few months, the government has announced certain measures to revive demand such as the constitution of realty AIF, lowering GST on affordable housing among others. It remains to be seen what additional measures it takes to revive the economy.


Ashok Mohanani, Chairman, EKTA World, and Vice President, NAREDCO Maharashtra

After five times cut in a row this year, RBI decided to keep the repo rate unchanged this time at 5.15 percent and continue with the accommodative stance as long as it is necessary to revive growth. The overall real estate sector will see stability in terms of investment and purchase behaviour. Monetary policy easing since February 2019 and measures initiated by the government over the last few months are expected to revive sentiment and spur domestic demand.


Rohit Poddar, Managing Director, Poddar Housing and Development Ltd, and Joint Secretary, NAREDCO Maharashtra

RBI has taken an accommodative stance with a temporary pause in the rate cut. The regulator is looking to make the next cut at a time when it will have the optimum impact. With liquidity remaining in surplus since June and the 135 bps cut till date, the impact will eventually play out in its expected actuality which will help the real estate sector in the long term.


Shiv Parekh, CEO, hBits

In the existing economic conditions, the industry was looking forward to a rate cut. In the last 10 months, the RBI has been generous enough to cut the repo rate by 135 basis points. Nevertheless, we hope in the next monetary policy committee meeting, a favourable call is taken.


Rajan Bandelkar, President, NAREDCO Maharashtra, Managing Director, Raunak Group

The status quo maintained by the RBI on the rate cut was much expected. The RBI's stance of taking a pause looking at the growth-inflation dynamics will not move the economy any further. In the past also, the advantage of the rate cut by the RBI was not passed onto the customers by a majority of the banks, which impacted the growth of the real estate sector. In the given situation, the RBI should not just look at the repo rate revision, but instead, take a holistic approach. It must focus on important areas such as the restructuring of realty loans, as well as, the reintroduction of subvention schemes. It must take steps to streamline the much-needed financing into the sector.


Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani

A repo rate cut would have been welcome as it would have lifted industry sentiments. The growth trajectory of the real estate sector will depend on the successive transmission of rate cuts to the end consumers and translate into lower EMIs. However, despite the reduction in repo rates by the RBI in the previous reviews, it did not have any significant impact on lending rates. Going forward, it is imperative for banks to reduce lending rates. We request the government to take necessary steps to create housing demand across segments.


Ketan Musale, Director, Dotom Realty

The rate cut would have been the need of the hour to provide the much-needed fillip to the real estate sector and to facilitate growth. However, the real estate industry, in particular, has been benefiting through policy interventions to stabilise the market. The country has a large number of potential home buyers and a rate cut would have been beneficial for them. We look forward to the government's decisions to lower the repo rate in the near future.


Niranjan Hiranandani, President, NAREDCO

Despite expectations of the rate cut, The Reserve Bank of India (RBI) decided not to continue with repo rate cut for the sixth time in a row, which was the need of the hour to revive the slowing economy. The benefits from the previous rate cuts are yet to play out completely and the real estate industry is still reeling under the liquidity crisis. India Inc. was expecting a rate cut of 1.0 instead of small tinkering such as a rate cut of 0.25 bps. The decision to wait and watch will go against the current sentiments and markets are disappointed. 


Manju Yagnik, Vice Chairperson, Nahar Group and Vice President, NAREDCO (Maharashtra)

The MPC has announced its decision to hold the Repo Rate at 5.15 percent despite the anticipation of a 25 basis point cut. Overall, this financial year has seen an adjustment of a good 100 basis points so far and is an indication of the government’s responsiveness to address the overall concerns around growth. However, the cumulative adjustments so far will also add to the momentum and are now reflecting in an uptick in the CPI projections. While the MPC recognises that there is space for future adjustments in monetary policy, a responsive rate adjustment and policy streamlining will help in sustaining homebuyers’ interest, especially in the affordable housing segment.


Anuj Khetan, Director, Vijay Khetan Group  

Despite the current situation in the overall economy, RBI’s decision to not lower interest rates has come as a disappointment to the real estate industry. The urgency to take measures to revive growth in the real estate was the need of the hour in the present scenario. However, the government recently announced Rs 25,000 crore funds for stalled affordable residential sector and homebuyers. A rate cut would have surely boosted confidence in the segment bringing in the much-awaited momentum in sales. We still hope that the growth priority prevails and a substantial easing is brought about in the next policy cycle. 


Anupam Gupta, Director, Sales and Marketing, GBP Group

The RBI has cut the repo rate by 135 basis points so far this year and growth sliding to 5 percent in Q1 and 4.5 percent in Q2, the expectation was for another deduction in the key policy rates as a lower interest rate would have helped raise the credit demand thereby providing much needed impetus to the overall economy of the country. 


Prateek Mittal, Executive Director, Sushma Group

After slashing the repo rate continuously for five times, RBI has maintained status quo on repo rate at 5.15 percent in today's monetary policy review. Though, we expected a rate cut of at least 25 bps this time as well. With an unchanged repo rate, we expect the government to take up some fiscal measures to boost the demand and enhance customer’s sentiment along with passing on the benefits of previous rate cuts to the end-users.


Sakshee Katiyal, CEO, Home and Soul

The downturn has hit the real estate industry badly. The economic activity in the real estate sector has been at the lowest in the last quarter. Inventory is lying unsold. RBI needs to supplement Government initiatives to boost the sector. Consumers are expecting cheaper home loans which will help revive the dampened growth.


Hakim Lakdawala, Promoter, Goodwill Developers

The real estate sector along with other industries would have been happy with another rate cut, nonetheless, we respect the decision made by the Reserve Bank of India for keeping the repo rate unchanged. The Government had recently announced setting up of an alternate investment fund. Going ahead, we look forward to the union budget and are hopeful that the government will pave the way for the progressive path of the sector ahead.


Rahul Grover, CEO, SECCPL

The decision of RBI to take a pause does not come as a setback to the real estate sector as a whole, as we already have liquidity in excess of Rs 2 trillion pumped into the banking system. The repo rate has consistently been decreased throughout the year. However, we have not yet seen a proportionate increase in lending as of today. Clarity in terms of future guidance on policy rates and liquidity conditions will go a long way towards increasing lending and investor confidence in the real estate sector.


Amit Jain, CMD, Arkade

Even with the unchanged repo rate, we now have the support of liquidity and the government initiatives to revive the demand from homebuyers. The real estate market as a sector witnessed a slow but rising demand from the end-users in the recent festive period after the last rate cut. Also, despite the slowdown, we have witnessed robust growth in the market due to PMAY and commendable reforms in the affordable housing segment by the Government of India. However, the wheels of change will only churn some results when the benefits of this revision are passed on to the consumer by the banks and inflation is kept under check. We hope this decision will be assertive and reflect from the first quarter of 2020.


Sundeep Jagasia, Managing Director, Shree Krishna Group  

Looking at the market dynamics, we were expecting the RBI to cut down the key policy rates. A rate cut could have been ideal as we are moving towards strong policy changes at the national level which will leave long term effects on the realty sector and its allied industries. The previous repo rate reductions by the apex bank are yet to offer the complete benefits and benefits are yet to be passed on by the banks. We hope that future rate cuts happen soon, thereby creating a wave of positive sentiments in the market.


Anshuman Magazine, Chairman & CEO-India, South East Asia, Middle East & Africa, CBRE

RBI’s decision to keep the repo rate unchanged is an indication of the government’s focus on the evolving inflation-growth dynamics. However, the central bank maintained an accommodative stance, signalling that room still remains for further monetary action. The introduction of external benchmarks has already resulted in better transmission of previous repo rate cuts and the focus of the central bank currently remains on addressing impediments that are holding back investments and dragging down economic growth.