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India rate cut to boost housing market

India’s central bank last week moved to bolster a slowing economy with its third key interest rate cut of the year, a decision that should give a boost to the country’s residential property markets.

June 10, 2019

The Reserve Bank of India cut its repo rate - at which the commercial banks borrow money from the Central Bank - to 5.75 percent from the earlier 6 percent. It also cut the benchmark rate in February and April.

The decision is likely to have a direct impact on the real estate sector, but only if banks mirror the cut in their lending rates, says Ramesh Nair, CEO and Country Head, JLL India

So far this year, that hasn’t happened. “Despite the 50 bps reduction in repo rates since the start of the year, mortgage interest rates have remained sticky and, as a result, home buyers are not yet feeling the benefit,” he says.

But this is likely to start changing, with banks more willing to pass on cuts to customers. “We expect banks to follow the RBI and reduce their lending rates accordingly, which will then impact ease individual retail loans,” Nair says.

India’s residential market has witnessed a recovery in the past 18 months. In first three months of 2019, sales grew by 28 percent compared to the corresponding quarter in 2018, according to JLL.

The latest rate cut “will further boost buying sentiment,” says Nair.

India's decision came shortly after Australia’s Reserve Bank cut its official cash rate to 1.25 percent, which also will likely boost the country’s beleaguered residential sector.

Continuity needed

However, India’s latest rate cuts alone are not enough to grow the country’s housing market, says Nair.

“Stronger implementation of the real estate regulation (RERA) and continuity of reforms under the second term of the current government is needed to boost home-buyer sentiment,” he says.

While recent policy measures have brought much-needed transparency to the market, it has not yet been uniformly implemented.

“Other than the rate cut and the regulation, streamlined construction approvals through a single window clearance will help in faster project commencement," he says.

While development firms are mandated to strictly adhere to construction timelines, approving authorities should also be responsible to bring in mechanism of faster approvals. Only then we will see timely delivery of projects, he adds.

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