RBI's repo rate cut to cheer builders, buyers

RBI's decision to cut repo rate by 50 basis points is expected to improve realty sales volumes and ease the pressure a bit for cash-strapped developers. For many developers, the past three years have been a forgettable one with their cost of funding rising in the backdrop of tight liquidity conditions. Cash flows were also a matter of concern with sales volumes touching new lows in key markets, including Mumbai.

But the rate cut is certain to cheer both developers and home buyers since home loan rates are likely to come down, and better sales volume is expected to improve realtors' cash flows.

"It is a good move by RBI as the cost of funds had become too high for developers. This was a big concern for the industry," said Pradeep Jain, MD of Parsvnath Developers. The cost of borrowing for Parsvnath is around 15% currently, and Jain hopes this rate cut will help bring it down a bit.

The central bank was widely expected to cut repo rate by 25 basis points in its annual monetary policy for 2012-13. But despite a more-than-expected rate cut, realty developers are still asking for more.

"This is really a starting point, but little more (rate cut) is required to trigger a full-fledged recovery," said Niranjan Hiranandani, MD of Hiranandani Group.

According to a recent Edelweiss Securities report, aggregate net debt of 11 listed companies remained stubbornly high, rising 2.4% over last quarter - closing at 41,700 crore as on December 31. Realtors had continued to tap NBFCs and PEs for funds at a significantly higher cost of 16-20%. In the backdrop of this stretched scenario, realtors are somewhat relieved that cost of funds will ease now.

Anuj Puri, country head for property consultancy Jones Lang LaSalle India, sums up the situation saying: "It will help developers as their interest outflow will reduce."

Hiranandani, however, thinks the benefit of lower funding cost is likely to be restricted. "It (rate cut) will be more beneficial to actual end users than developers themselves in the form of lower cost of funding. For developers, rising input costs and several taxes will partially offset the rate cut benefit," he said.

RBI, in its forward guidance, said lower potential growth and upside risks to inflation will limit space for further cut in policy rates. This is expected to push sales volume as buyers now may not defer their home buying in anticipation of further rate cuts, realty brokers said.

Source: http://economictimes.indiatimes.com/markets/real-estate/news-/rbis-repo-rate-cut-to-cheer-builders-buyers/articleshow/12710955.cms