subject: Experts Says: Rbi Rate Cut May Not Impact Real Estate Prices [print this page] Sales of residential property in Mumbai will continue to remain sluggish even after the Reserve Bank of India on Tuesday reduced by 50 basis points its repo rate. The interest cut wont make home affordable as property in Mumbai are already high and unlikely to come down given the high input costs.
Developers says, that they have has to increase property prices by 5% to 10% as the cost of funds has increased along with input costs and other expenses. Bank pass on the benefit of the interest rate cut to developers, then they may see a saving of Rs. 5 Crore on interest costs but it too small to have an impact.
Property experts says, after bank tightened credit to the real estate sector the developers were forced to borrow money from non-banking finance companies at 16-18% interest and from private equity funds at rates between 20 and 24%. Mr. Sandeep Reddy the Chief executive of Groff, a realty portal said, rate cut may not cause prices to come down in the near future.
It is unlikely that the price of property in Mumbai will come down because of the rate cut and there will also be an upward bias on property rates because of the anticipated improvement of buyer sentiment. As per, NHB Residex, which tracks realty rates in key cities, the prices of the flats in the city rose by 11.6% in October-December 2011 as compared to the corresponding quarter of 2010.
Sales may rise by 10 to 15% on a month-on-month basis and 20% cumulatively on a yearly basis the realty sector is heavily dependent on non-banking finance firms. Mr. Jain dont think prices will reduce until the liquidity situation improves and banks start lending.
Increasing interest rates between March 2010 and October 2011 has kept many prospective buyers away due to high price in residential property of Mumbai and rising mortgage rates. The sales of residential and commercial properties of Mumbai fell by 15% during the January to March quarter this year compared to a 9.1% fall in transaction in the corresponding period in 2011 as per experts.
Mr. Paras Gunecha president of MCHI-CREDAI says that commercial banks should cut the interest rate so that home loans would become affordable.
Double bonanza of inflation numbers and the central banks repo rate cut have given ample reasons for home loan borrowers to rejoice this week. Untamed inflation chokes economic activity and growth. Reserve Bank of India (RBI) has the twin responsibility of keeping inflation anchored and in control while accelerating the pace of economic growth. Though still classified as high, the inflation expectations moderated in the fourth quarter of 2011-12 as the number shows signs of softening in the days ahead. This signals a good time to purchase residential property in Mumbai.
