By Anuj Puri, Chairman
& Country Head, JLL India:
The policy
rates have been reduced by 25 basis points to 6.25%. This rate cut
delivery has happened for the second time in the current financial year,
although after one round of rate cut in April, the current one is delivered
after no change in the June and August policies.
This shows that the
central bank remains cautious in its monetary policies and is carefully
monitoring the overall economic scenario before taking steps.
The first question
that arises after this rate cut is, of course, how it will help improve buyer
sentiment in the housing sector. The reason why housing sales have been
sluggish is because of trust deficit between consumers and developers.
Unless RERA and other
pro-consumer policies come into play, buyers will continue to be wary.
Therefore, we can expect only a marginal improvement in sentiment on the back
of this rate cut. At this point, there is also no ready answer to the question
of to what extent banks will actually pass on the benefit of the rate cut
to borrowers.
From a larger
viewpoint - globally, risk to inflation is on the upside as rising global
liquidity could result in firming up of commodity and fuel prices, especially
at a time when OPEC is contemplating a cut in oil production to cap further
fall in crude prices.
On the domestic front
from the food inflation perspective, conditions remain benign owing to good
monsoons (at only 3% below the long-period average rainfall, this year’s
rainfall was normal). However, there is marginal upside risk that could come
from higher pay owing to effects of the 7th pay commission’s
revisions as well as the expected rise in rural demand owing to good food grain
production. It may be construed that lowering of rates going forward will,
therefore, depend on such upside risks mitigating to a great extent.
For the construction
sector, great relief is expected as steel and cement production has been robust
as seen from latest industry production data. Therefore, rising cost pressure
which haunted developers earlier may not be a major issue in the
near-term.
The effects of the 7th pay
commission revision on house rents is something which needs to be monitored
further in order to ascertain its impact on the housing rents.
A further rate cut,
the low-cost pressures on the construction industry and gradual revival of
sentiments augur well for the real estate sector.
However, for sentiments
to witness a turnaround, stakeholders would continue to expect a sustained
strengthening of the economic situation. RBI’s expectation of a 7.6% growth in
the gross value addition is a positive one.
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