Impact of RBI`s Repo Rate Cut On Real Estate Sector
The investment by domestic and foreign institutions in residential real estate projects like - apartments, independent houses, and townships, has been more than double, then what was done in the commercial projects.
As the investment in residential real estate has always remained the most favored segment for asset creation in India. The first half of this year has already attracted 56% of the overall investment in the residential real estate sector.
Experts are asserting that the continuous efforts on reforms in the real estate sector policies, is helping in building a confidence among the institutional investors and middle-class home buyers.
The tough steps taken by the government against corruption through the implementation of - RERA, Goods and Services Tax (GST), Demonetisation and Benami Property Act is making the whole ecosystem of the economy more transparent and is showing positive effects.
Also, the growing middle-class population in the country is increasing the demand for homes which are affordable and sustainable. It is estimated that the boom of the residential sector will continue for next 20 years and it will attract more capital than the commercial/ office real sector space. It is observed that there has been more equity oriented deals in residential spaces than by debt.
On the 2nd of this month, the Monetary Policy Committee (MPC) of the Reserve Bank of India reduced the repo rate (short term lending rate) by 0.25 basis points to 6% (this is a 7 year low). This will assist in increasing the affordability of home buyers and is expected to enhance the demand in the housing sector. Also, with the starting of the festive season, in which several housing projects are launched, this move is surely going to impact the real estate sector very positively.
The developers and builders are expecting that the banks will pass this rate cut by lowering their interest rates on home loans. With a stable government at the center and majority in its hand - is pushing more policy reforms in all sectors of the economy, to make it more transparent and attract more global investors. The positive impact of this had been already witnessed after the implementation of GST.
The Real Estate with undergoing transformations through RERA, push for affordable housing and Real Estate Investment Trust (REITs), the domestic investors are also showing more interest in this sector.
Considering the new reforms, a rate cut of 25 bps, a good monsoon in progress, stable inflation numbers and favorable global environment and the overall surge in industry sentiments, a healthy lending rate would provide the much-needed thrust to propel India's growth story.