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No festive cheer for realty industry. After the announcement of unexpectedly high 50 basis points cut in repo rate by the RBI on September 29, it was expected that the move would improve market sentiment, leading to increased demand and more sales especially as only a part of the multiple rate cuts amounting to 75 basis points effected this year before September 29, was passed on to the consumers by the banks.
Despite demand slump, prices not coming down. Within a week of the rate cut by RBI, hopes of real estate developers and home buyers are belied as banks are not transferring the rate cut benefits to customers
After the announcement of unexpectedly high 50 basis points cut in repo rate by the RBI on September 29, it was expected that the move would improve market sentiment, leading to increased demand and more sales especially as only a part of the multiple rate cuts amounting to 75 basis points effected this year before September 29, was passed on to the consumers by the banks.
But now, within a week of RBI announcement, the hopes of real estate developers and home buyers seem to have been belied as the banks have not transmitted the cut to the consumers. The State Bank of India (SBI), which earlier announced a 40 basis points cut in its base rate, has now revised its decision by reducing the base rate cut by 50 per cent to protect its margins.
Few other banks had announced 20-30 basis points cut in their base rates and home loan rates are still hovering well over nine per cent. What is more confusing is the SBI' s new policy to offer home loans at 20 basis points higher than the base rate to women and 25 basis points higher than the base rate to men in contrast to its earlier policy of offering home loans to women at base rate and to men at five basis points above base rate.
In this scenario, the inability of the banks to transmit the RBI rate cut to home buyers is sending negative signals. Despite the developers trying all kinds of marketing gimmicks including subvention schemes with upfront payment as low as 5 percent of home price, interest waiver for 2-3 years and freebies, sale velocity has not picked up.
Rather, it is a matter of concern that during the first half of this year, the sales have plummeted by 50 percent. Both investors and end users have deserted the residential property market - investors due to slow moving market with stagnant or dipping prices and end users due to unaffordable prices and concern about the safety of their investment because of massive delivery defaults.
These investor-led markets have largest number of delivery defaults and highest unsold units. NCR tops with 232,000 lakh unsold units, followed by Mumbai with 170,000 units while Bangalore, Pune and Chennai have 111,000, 70,000 and 60,000 unsold units respectively. Developers are holding on to prices on the ground that low margins due to steep rise in input costs and high cost of loan servicing do not give them enough leg room to bring down prices.
But what they are ignoring is that the latent demand is not getting translating into sales due to affordability concerns. Instead of offering direct price discounts, developers are offering indirect discounts in the form of club fee, registration and stamp duty waiver. Besides unaffordable property prices and high interest rates, long delays in project completion are proving to be a home buyers' nightmare.
It is a double whammy for them as due to delayed delivery, they are forced to bear the burden of both EMI and house rent, especially when the job market is unfavourable. In the backdrop of interest rate dampner, it looks unlikely that this festive season will turn out to be a saviour for both developers and home buyers and the realty sector may take longer to ride out the current slowdown
By VINOD BEHL
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