India's rate cut to boost the housing market

Last week, the Indian central bank decided to strengthen the economic slowdown with the third reduction of its key rate of the year, which should give a boost to the country's housing markets.

The Reserve Bank of India lowered its repo rate – at which commercial banks borrowed money from the Central Bank – to 5.75%, compared to 6% previously. It also reduced the reference rate in February and April.

This decision will likely have a direct impact on the real estate sector, but only if the banks reflect the reduction in their lending rates, said Ramesh Nair, CEO and National Director, JLL India.

So far this year, this has not happened. "Despite the 50 basis point reduction in reverse repo rates since the beginning of the year, mortgage interest rates have remained rigid and, as a result, buyers have not yet experienced any benefits" , did he declare.

But this is likely to start to change, as banks are more willing to pbad on discounts to their customers. "We expect banks to follow the RBI and reduce their lending rates accordingly, which will more easily affect retail lending," Nair said.

The Indian residential market has recovered in the last 18 months. In the first three months of 2019, sales increased by 28% compared to the corresponding quarter of 2018, according to JLL.

The latest rate cut will "further enhance the sense of purchase," Nair said.

India's decision was taken shortly after the Australian Reserve Bank lowered its official exchange rate to 1.25%, which should also boost the country's besieged residential sector.

Continuity required

However, India's latest rate cuts alone are not enough to grow the country's housing market, Nair said.

"Stricter enforcement of real estate regulations (RERA) and continuity of reforms under the current government's second mandate are needed to strengthen the sentiment of buyers," he said.

Although recent policy measures have provided the market with the much-needed transparency, implementation has not yet been implemented in a consistent manner.

"In addition to reducing rates and regulations, simplifying construction approvals through a single window will make the project start faster," he said.

Although development companies are required to strictly adhere to construction deadlines, approving authorities should also be responsible for setting up a faster approval mechanism. Only then will the projects be delivered on time, he adds.

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