Thursday, 3 December 2015

Urban factor

The RBI credit policy announced on Tuesday, including an unchanged repo rate, may not have had anything particular for the real estate sector. That, however, has not dampened the spirit of the realty sector in the country, riding comfortably as it is on the multiple rate cuts initiated by the apex bank through the year, in addition to the government’s urban renewal plan.

There is a sense of relief. Insiders say while it will take some more time for the announcements to reflect on ground, the housing segment has seen stability and improved market sentiments. The real estate sector, in the throes of depression over the last couple of years, is hopeful that the RBI will continue to monitor the situation and make necessary adjustments to boost the economy in the New Year.

They also thank the Central government. June 25 is regarded as red-letter day for the sector when the Center announced development of 500 cities under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) plan for its Smart India mission.

The Central government had cleared proposals worth Rs 11,654 crore aimed at improving basic infrastructure and facilities in 272 cities and towns, which include investments worth Rs 3,120 crore in 102 cities and towns. This, they believe, will gradually help shape the future demand for housing and office spaces.

Says Anshuman Magazine, chairman & MD, CBRE South Asia, “This RBI decision on Tuesday was largely expected. The multiple rate cuts initiated by the RBI through the year have provided some relief to the economy and the real estate sector. While it will take some more time for the announcements to reflect at the ground level, the housing segment has seen stability and improvement in market sentiments. As we move into the New Year, we hope the RBI will continue to monitor the situation and make necessary adjustments to boost the economy.”

In fact, sector experts were not surprised by the RBI decision. Points out Shishir Baijal, chairman and managing director, Knight Frank India: "the stand is in sync with developments in the macro economic scenario wherein GDP growth has risen to 7.4 per cent in the July-September quarter from 7 per cent in the earlier quarter and with around 30 per cent contribution by gross fixed capital formation. Investment demand and manufacturing growth have also exhibited a distinct rise. Retail inflation expectation is higher and actual inflation is likely to build up in the coming months as the impact of the poor monsoons unfolds. Global concerns including a weaker rupee have also added to the worries. The current RBI stance underlines its concern that despite a total of 125 bps cut in the repo rate till September 2015, banks have not yet transmitted enough the benefits to the end consumers.” It is a complaint that is getting shriller.

Baijal admits that after a total of 125 bps cut in rates across the year, the ball is in the banks’ court. "Regardless of this cumulative cut, banks on their own should be able to transmit more benefit to consumers as the cost of funds is becoming cheaper with improved liquidity conditions. Factors like reexamining the pricing strategy by developers and abiding by project completion timelines and the overall economic growth are also crucial.”

One of the important reasons why the real estate sector remains relatively unfazed has been the Central government’s decision to kick off various crucial infrastructure upgrade plans across the country. Says Ashok Gupta, CMD, Ajnara India, “The much-awaited infra upgrade plan is finally underway. Infrastructure in any region serves as the backbone for the realty sector and this money will allow different regions to develop a platform for the realty sector. This will gradually help shape future demand for housing and office spaces,’’ he points out.

Vivek Gupta, director, Vardhman Estate and Developers, echoes this sentiment: “A strong foundation for smart cities will be provided by the AMRUT plan. We can think about developing smart cities only when basics are in place. Over Rs 11,000 crore has now been set aside for rejuvenation and urban transformation of 272 cities and towns, which will greatly upgrade infrastructure in those regions.”

In this scenario, states are major gainers. The Center has cleared Rs 438 crore investments in 18 cities identified in Haryana during the next fiscal year. Likewise, nine cities in Chhattisgarh would get Rs 573 crore, a sum of Rs 416 crore has been assigned for 12 cities in Telangana and Rs 588 crore for nine cities in Kerala. The largest chunk of funds are being earmarked for West Bengal where Rs 1,105 crore is meant for 54 cities and towns.

For augmentation of civic infrastructure, the Center has also approved investments worth Rs 2,386 crore towards water supply projects in 58 cities, Rs 495 crore for sewerage projects in 17 cities, Rs 106 crore for storm water drains in nine cities, Rs 61 crore for urban transport in another nine and Rs 72 crore for development of parks and green spaces in 102 cities during this financial year.

The Center and state governments between them will invest about Rs 11,654 crore to make available 135 litres of clean drinking water per person each day and provide sewerage linkages in 272 cities.

A majority section believes the apex bank’s position has been steady and balanced. Kushagr Ansal, director, Ansal Housing says, “The apex bank has used a steady approach this time, with its eyes on inflation. Inflation rate has been constantly looking at a downward course and pretty much on way to attaining the 6 per cent targeted number by next month. Hence, the next policy review might present the country with good news if inflation and fiscal deficit are kept under check”.

Deepak Kapoor, president CREDAI-western UP and director, Gulshan Homz, feels the same. “RBI’s rate reduction by 50 basis points in its previous policy review in September, coupled with early signs of economic recovery and inflation following a well-directed downward trajectory, is balanced and expected review decision. This recovery path, if followed, might witness a rate cut in the next policy review,” he predicts.

Then there are others like Vikas Bhasin, MD, Saya Group, who feel that with the Seventh Pay Commission’s plan of 23.55 per cent hike in salaries, it was crucial for RBI to come out with a no-change review keeping in mind its anxieties about the future inflation rate. Accordingly, the apex bank might have to follow a suitable budgetary tightening approach to reduce its impact on the economy.

However, for some others - not many - it is a thumbs down. Points out Rohit Poddar, managing director, Poddar Developers, “The value housing sector was eagerly looking forward to this upcoming repo rate cut. Understanding the problem of inflation, this move was expected to benefit the affordable housing sector ensuring easy purchase of properties. We hope this no-change is short-lived.’’

Rahul Saraf, managing director, Forum Projects, concurs. “The RBI's move is a bit unexpected, especially after the last monetary policy announcement where repo rate cut was 50 bps. Due to this, the market will be the same, giving the customer some scope to invest a higher amount without a glitch. This time the policy will not have much of an effect on the real estate sector.” Guess, it is difficult to keep everyone happy in these tough times.

Source: PropertyatNeoDevelopers.Wordpress.Com

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