Realty industry welcomes rate cut, sees benefit for all

New Delhi, April 17 (IANS) The interest rate-sensitive realty sector Tuesday welcomed the Reserve Bank of India's (RBI) decision to cut key lending rates by 50 basis points, and felt the move will boost sentiments of builders and home loan customers.

"It's a big move forward and by cutting the interest rates RBI has empowered the buyer which will be a very positive step for our sector," said Rajeev Talwar, group executive director, DLF.

The stocks of the realty major DLF was one of the biggest gainer in Tuesday's trade at the Bombay Stock Exchange where its scrip surged by 5.50 points or 2.76 percent at Rs.205.

Other industry players too welcomed the move which they said would provide relief to the sector which faced the brunt of the sluggish market linked to high interest rates.

"For the real estate in particular, this is indeed a welcome step by the RBI. While the sector was already reeling under the pressures of high interest rates, this will allow banks to lower the interest rates significantly. Both buyers and developers shall get benefitted from this," said Pradeep Jain, chairman, Confederation of Real Estate Developers' Association of India (CREDAI).

Home loan buyers are currently paying a higher rate of interest in the range of 11.50-13 percent on floating basis. Customers, who had earlier opted for dual rate scheme and now just exhausted their fixed tenure rate, are paying the same rate of interest.

The apex bank also provided relief to home loan buyers in its annual monetary policy announcement for 2012-13 in which it asked banks not to charge any penalty on pre-payment of loans taken on floating rate.

Other industry players like Unitech and real estate consultancy firm Cushman & Wakefield also welcomed the move, which they said would boost business confidence.

"This development will have a positive impact across the economy and particularly in the real-estate industry. Not only will the cost of borrowing rationalise, this reduction will also provide an impetus to growth and enhance business-confidence," said Ajay Chandra, managing director, Unitech.

Cushman & Wakefield India said that the banks were expected to pass on the reduction in interest rates to consumers, which would provide a positive boost to market sentiment, especially in the residential sales.

"We expect to witness some pick-up in the volume of sale transactions. For the whole of last year, the end buyers had to defer their purchase decisions as they were facing the double-edged sword of rising interest rates and stubborn price levels," said Anurag Mathur, managing director, Cushman & Wakefield.

The RBI's announcement also buoyed the BSE Realty index which grew by 42.86 points or 2.41 percent at 1,824.33 points in Tuesday's trade.

Announcing the monetary policy for the current fiscal, RBI Governor D. Subbarao said the repurchase rate was being cut by 50 basis points to 8 percent, which will automatically see the reverse repurchase rate also drop to 7 percent from 7.5 percent.