Real Estate Sector Update

RBI’s measures for realty sector, will it help???

Over the last few weeks, RBI has announced several measures to improve the health of the realty sector. Starting with reduction of risk weightage for the commercial real estate loans provided by the banks, the central bank has also allowed banks to restructure loans provided to the real estate companies and treat them as standard assets. We believe RBI’s move shall provide some kind of relief for the developers over the near term. However, the most important issue, which is the demand side, still needs to be addressed. Indian Bank Association (IBA) also announced capping interest rates for housing loan up to Rs.0.5mn to 8.5% and loans between Rs.0.5-2mn to 9.25%. We believe neither the interest rate of 9.25% nor preferential treatment for loans up to Rs.20mn is enough to boost the sentiments. Further, our interaction with companies suggests that some of them are now openly admitting to negotiate on lower prices which are ~25-30% below the peak rates. However, over the near term much would depend on how swiftly the interest rates fall for any kind of pent up demand for the residential properties. In nutshell, if RBI has responded to industry demand for making available loans to the industry, it is now on the industry players to respond by cutting on the prices to induce demand.