RBI FAILS TO MEET MARKET EXPECTATIONS

     

With the Union Budget 2017-18 recently announced, markets were anticipating the RBI to come out with a decision to further ease the pressure off the market. With the banks currently holding high liquidity, a rate cut today could have assisted the borrowers in a big way. RBI’s neutral stance today, becomes its second in a row after the previous bi-monthly policy review in December last year. Markets were hopeful that the apex bank will reduce the key rate this time to allow the economy to breathe easy, but has failed to meet the expectations yet again. This being the first bi-monthly policy review for the current calendar year and post the budget; and the sixth and final for this financial year, a rate cut at this point of time would have pushed the banks to further drop their lending rates in near future. This further drop in the lending rates could have motivated the borrowers to gain access to funds at even more lowered rates, thereby signalling a growth in the demand and reduction in EMIs.

With today’s decision in the monetary policy review, the Repo rate remains unchanged at 6.25 percent, Reverse Repo rate under the LAF at 5.75 percent, Statutory Liquidity Ratio (SLR) changed to 20.5 percent from previous 20.75 percent, Cash Reserve Ratio (CRR) at 4 percent and Marginal Standing Facility (MSF) at 6.75 percent respectively. After a series of rate cuts for the general and affordable housing markets recently, this move could have only benefitted further. Realty experts aren’t welcoming this move as the economy was gaining momentum especially after demonetisation, and they believe that the growth graph will carry on to look a bit stagnant until rates are reduced further.

Industry Reacts:

Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz

Looking at the current market scenario, we were anticipating a repo rate cut by at least 25 basis points as the banks were already holding high liquidity and the benefit could have been passed onto the buyers. Lowered interest rates just ahead of the financial year closing could have allowed the buyers to plan their future investments, and realty sector would have benefitted the most especially after the recent lending rate deductions by the banks. RBI has played a wait and watch approach and might be waiting for the remonetisation drive to conclude properly and should cut the rates in April.

Kushagr Ansal, Director, Ansal Housing

We had pretty much entered a rate reduction cycle which was bringing back the demand for property investments in the market. After such a populous budget, a rate cut should have been there but the RBI has gone against the market forecasts. A rate reduction today could have allowed the realty buyers to plan property purchase as EMIs could have further eased. Banks are still to pass on the benefits of the previous repo rate cuts and a deduction today could have escalated the matter further.

Vikas Bhasin, MD, Saya Group

The government borrowings had reduced to INR 3.48 lakh crore from 4.25 lakh crore as presented in the Budget, which meant that a rate reduction was quite evident. Earlier this year, the government had provided subsidy on interest rates for affordable housing segment and banks had also reduced the general home loan interest rates by upto 50-60 basis points. A rate cut today could have allowed the potential buyers to invest in property as the EMIs would have reduced further in coming months. We hope that the next bi-monthly policy review observes a rate cut as it has been a neutral review for the second straight time.

Dhiraj Jain, Director, Mahagun Group

In case of a low interest rate environment surrounding the economy and cash available in abundance, the risk of inflation moving up exists. Hence, the RBI doesn’t reduce the rates until it has been fully convinced about the inflation control; as even the inflation has been on a rise for the fifth straight month in December. On the other hand though, since demonetisation, banks are keeping a strong credit and a rate cut today would have allowed them to pass on the benefits to the borrowers where reduced EMIs could have made the demand to take an upward movement on the demand graph for the property market.

Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group

This is a surprise move by the RBI as we were expecting a 25-50 basis point reduction of the repo rate. The market has been gaining stability and post the union budget, further ease was looking on the cards. Even though the RBI has not provided any rate cut this time, fresh home loan borrowers should not worry much as they may still witness lowered EMIs because amidst intensifying competition among the lenders, the banks might be forced to start cutting down the interest rates themselves.

5 factors why RBI may go for a 25 bps cut but be ready to be surprised

NEW DELHI: The stars are aligned for an interest rate cut by the Reserve Bank of India (RBI) on Wednesday, but the central bank is known for delivering surprises.

A kneejerk reaction on Dalal Street cannot be ruled out in case the central bank decides to maintain status quo on rate this time again.

More than 1,000 Twitteratis in an ETMarkets poll have voted in favour of a 25 bps rate cut by the Reserve Bank of India (RBI) on Wednesday. As many as 43 per cent of participants, who voted in the survey, said RBI could cut rates by 25 bps, while 40 per cent expect no rate cut and 17 per cent foresaw a rate cut of up to 50 bps.

The domestic macro-economic backdrop clearly calls for continuous monetary easing, especially because the fiscal impulse to growth remains modestly negative.

“The global scenario remains a tad uncertain, but we believe it does offer a window of opportunity to RBI to act. Overall, we expect a 25 bps rate cut by the central bank on February 8,” Edelweiss Securities said in a report.



Going by the buzz on Dalal Street as well as what economists are saying, we have collated a list of five factors that may make RBI go for a rate cut.

A supportive Budget: The Union Budget announced on February 1 had no surprises. The government remains committed to continued fiscal consolidation from 3.5 per cent of GDP in FY17 to 3.2 per cent in FY18.

“The assumptions underlying the fiscal deficit target were broadly realistic, barring a few ‘quibbles’, such as a rich disinvestment target, and there was an improvement in the quality of expenditure,” Pranjul Bhandari, Chief India Economist at HSBC Securities and Capital Markets (India) Private, said in a note.

“The fiscal impulse from the Budget alone is likely to be negative, leaving some space for RBI to remain accommodative,” she said.

“On interest rates, while it is a close call, we expect RBI to cut by 25 bp. We expect RBI to discuss its forecasts, but continue to hold on to its accommodative stance,” Bhandari said.

Benign inflation: The macro backdrop for the forthcoming monetary policy review is conducive for continued monetary easing. Inflation remains low and contained at 3.4 per cent, which is below RBI’s target.

Retail inflation is likely to be well below RBI’s target of 5 per cent this financial year, as demonetisation would discourage any headwind on the price front, the Economic Survey for 2016-17 said.

During April-December, retail inflation averaged 4.9 per cent and has displayed a downward trend since July. Retail inflation eased further to a near three-year low of 3.41 per cent in December, reflecting weak demand, as consumers grappled with cash crunch following demonetisation.

Though it may rise in the coming months, it will still undershoot RBI’s indicative trajectory

Stable global environment: In its December policy review, one of the reasons cited by RBI to hold policy rate was Fed’s tightening stance and the associated strength seen in the US dollar. Since then, the USD has stabilised and, in fact, weakened to some extent.

If RBI believes there is space for a rate cut, then it should move quickly. Inflation is low thanks to food prices, the Budget was disciplined and the dollar is steady.

“At the global level, though uncertainty persists, the situation still offers space as the US Fed is not in a hurry to raise interest rates immediately and the US dollar is showing a weakening bias,” Edelweiss Securities said in a report.

“Moreover, the rupee is overvalued. In our view, this backdrop warrants a 25 bps rate cut,” it said. The Fed is not in a hurry to raise rates. Perhaps, the next move by the US Fed could happen around mid-2017.

Comfortable fiscal math: The economy is certainly stabilising after the demonetisation shock, but still aggregate demand remains weak with private capex particularly anaemic.

The central government’s aggregate expenditure growth is going to moderate sharply to 6-7 per cent YoY in FY18 compared with 12-14 per cent in the past 2-3 years. “The fiscal math presented in the Budget is quite credible, which should also be comforting for RBI,” Edelweiss Securities said in a report.

Note ban has hurt growth: The Economic Survey released last week pointed out that demonetisation would have both short-term costs and long-term benefits, but growth will get hit in the short term.

To keep the momentum going, RBI might give a booster by cutting interest rates by 25 bps to facilitate further transition.

“Given the government’s intention to adhere to fiscal prudence despite the compulsions of supporting a slowing growth momentum, we expect RBI to deliver a 25 bps rate cut in the forthcoming monetary policy,” Kotak Institutional Equities said in a note.

“We continue to see scope for 50 bps rate cut through FY18,” it said.

The domestic economy should grow between 6.75 per cent and 7.5 per cent in the financial year beginning on April 1, 2017, said the Economic Survey for 2016-17 last week.

The survey’s GDP growth figure for this financial year is lower than 7.1 per cent the Central Statistics Office had forecast earlier this month.


Source - Et Realty

Gurugram may open more areas for real estate as state reassess controlled areas

GURUGRAM: Unplanned construction may come up in many rural areas on the outskirts of the city if the Haryana government goes ahead with its plan to denotify some of the areas marked as controlled areas in the state, where no construction activity can be carried out without the approval of the department of town and country planning (DTCP).

With 113 notified areas in Gurgaon, the entire district is currently under the Controlled Areas Act, 1963. This means every construction needs the DTCP’s permission. Once an area is denotified, a land owner can take up construction there without seeking DTCP’s approval. Though the proposed move could meet the high demand for real estate in Gurgaon, urban planners say it will subvert the long-term development plans mentioned in regional, sub-regional and master plans.

The Haryana government has recently decided to reassess the status of controlled areas in the state, citing impact on agriculture and allied activities due to a significant increase in such areas in the past decade. A letter has been sent to all field officers of DTCP across the state, including Gurgaon, to conduct a field survey of controlled areas and submit a report.

Haryana has a total area of 44,212 sq km, out of which 14,000 sq km has been declared as controlled areas, which is almost 32% of the state’s total area. “Till 2015, only around 14% of state geographical area was under controlled area, now it has increased to 32%,” says the letter issued by the chief coordinator planner (CCP), NCR, Haryana.

“... it is required to reassess the controlled areas declared by the department. In case it is felt that the areas within controlled area are experiencing very few incidents of unregulated and haphazard development and where requests for seeking change of land use has been decided, such areas can very well be considered for denotification. It has been decided that field officers in each district would prepare an assessment report of controlled area,” it adds.

Urban planners say that denotification of controlled areas can disturb the future development work. “There is a regional plan (for entire NCR), sub-regional plan (for few districts) and then the master plan for a particular city. All these plans have proposals for several infrastructure and other development works, which will take place in next 20 to 30 years. Denotification of controlled areas will only hamper developments.”

Source: The Economic Times

Banks set to cut loan rates further due to slow growth in credit

MUMBAI: Bank credit increased by nearly Rs 1.7 lakh crore during the current financial year up to January 20, 2017, as compared to a more than Rs 11-lakh-crore increase in deposits. This huge gap in growth of banks’ resources, even as demand remains tepid, points to further reduction in interest rates.

The gap of nearly Rs 10 lakh crore between the growth of deposits and loans will no doubt shrink in the remaining nine weeks of the year as withdrawals gather pace. But banks say that they will still run an asset-liability mismatch until early next year, which will prompt interest rate reductions despite higher oil prices putting pressure on inflation. Most economists expect the RBI to cut rates by 25 basis points (100bps = 1 percentage point) when the monetary policy committee meets next week on Tuesday.

Data released by the RBI on Friday shows that outstanding loans with banks as on January 20 at Rs 74,177 crore are lower than their loan book position as of end-September. On September 30, outstanding bank loans touched an all-time high of nearly Rs 75 lakh crore. However, in subsequent weeks, borrowers have been repaying loans. Deposits, which touched a peak of around Rs 1.06 lakh crore, continued to shrink and total deposits with banks dropped to Rs 105 lakh crore as on January 20 as the pace of remonetisation picked up.

The two weeks ended January 20 was the first fortnight after the demonetisation exercise came to a close. As customers withdrew money they had turned in, deposits dropped by Rs 88,861 crore. The same fortnight in 2016 had seen bank deposits shrink by only Rs 7,599 crore. Earlier this week, the central bank had released information on sector-wise deployment of bank credit up to December 23, 2016. In FY2017, the period up to December 23 saw credit to industry shrink by Rs 1.5 lakh crore. However, outstanding credit remained flat thanks to a Rs 1.16-lakh-crore growth in personal loans and Rs 38,000 crore growth in credit to services. Almost half of the personal loan growth came from home loans with mortgage books of banks growing by Rs 73,000 crore during the year.

“We expect the RBI to deliver a 25-bp repo rate cut on February 8, given continued fiscal consolidation and likely undershooting of its near-term inflation target. However, with global factors turning adverse — higher oil prices, narrowing interest rate differentials — this is a close call,” said Sonal Varma, economist with Nomura.

According to Pranjul Bhandari, chief economist, HSBC India, rising commodity prices is reducing the scope for rate cuts. “With oil on the climb, pressures from higher government wages, and Fed rates expected to rise, the space for rate cuts is quickly dwindling. We expect one final 25-bp rate cut in the cycle”.

Source: The Economic Times.

Haryana govt approves Gurugram-Manesar metro

GURUGRAM: The Haryana government on Thursday approved a proposal by the industries and commerce department to set up a Mass Rapid Transport System (MRTS) between Gurgaon and Manesar, putting Metro connectivity between the financial and industrial hubs on the fast track.

The state cabinet, which met under the chairmanship of chief minister Manohar Lal Khattar, also decided that the state government will stand guarantor for a loan of Rs 876 crore, to be taken by Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) from Hudco, to acquire 365 acre for the project.

Government officials said the proposal was of great strategic importance, as Japan International Cooperation Agency (JICA) has committed in-principle to provide Rs 16,000 crore for the project. The MRTS is being developed as a project under the Delhi Mumbai Industrial Corridor Development Corporation. In the first phase, which got the crucial nod on Thursday, an elevated corridor will proceed from Huda City Centre towards the Southern Peripheral Road (SPR) and finally to Panchgaon Chowk, located on NH 8 near Manesar. In the second phase, the Metro link will travel from Panchgaon Chowk to Bawal industrial area, and in the third phase, there are chances it will be further extended all the way to Neemrana in Rajasthan. The proposed length of the corridor is 108km.

The project was earlier slated to start in 2015 and finish within four years. In 2012, an extension of the Metro line till Neemrana was also proposed, but a final decision on that is yet to be taken. The project will be developed as a public-private partnership, and was first announced as part of DMIC in 2009. Around 140 acres have been acquired for a Metro depot near the Global City Project for the purpose.

According to authorities, the first phase is likely to be launched next month.

“If everything goes as per plan, we’re looking to launch the first phase by March-end,” said a state government official.

Source - ET Realty 

PHD Chamber calls for giving infra status to entire real estate sector

NEW DELHI: Industry body PHD Chamber of Commerce and Industry has proposed to the government to give infrastructure status to the entire real estate sector, rather than confining it to just the affordable housing segment.

Submitting its proposal to urban development minister Venkaiah Naidu post budget, the industry body urged the minister to take up this proposal to the finance ministry.

"The conferment of infrastructure status on real estate will make dwelling units competitive in cost and effective in the affordable sense and remove the prevailing ambiguities if any in this segment of Indian economy," PHD Chamber said.

This status becomes now imperative since real estate serves and handholds about 265 ancillary industries and with its consistent growth not only economic activities will widen and broad base but also additional employment be created and generated which is the need of hour, it added.

The chamber also praised the government’s budget proposals to give tax relief to the real estate developers on unsold stock as liability to pay capital gains will arise only in the year the project is completed.

Source - ET Realty

REALTY SECTOR HAILS THE UNION BUDGET 2017-18

The much awaited Union Budget 2017-18 has been finally announced and has scored high in terms of impressing the countrymen, with the realty sector making the most out of it. This being the third extensive Budget presentation by the current government, and first after the recently concluded 50 days of Demonetisation, the government was observed to be pro-active in terms of offering incentives and rebates to the people. The New Year Eve of 2017 saw incentives announced for the affordable housing segment which was followed by the banks declaring lending rate reductions very next day. Teasers about positive changes in the personal income tax structure were making rounds well ahead of the Budget day too. By granting infrastructure status to the affordable housing segment, reducing the tax rate for the initial slab and big plans laid for the infrastructural development of the country, this Union Budget has expressed its road ahead for the realty sector of the country which will now bet big in near future. As predicted, a common man’s Budget has been presented and this is expected to bring about a transformation in the economy.

Key Economic Highlights:

• CPI inflation dropped to 3.4 percent from 6 percent.
• Trade deficit dropped from 1 percent of the GDP to 0.3 percent of the GDP.
• FDI increased from INR 1.07 lakh crore to 1.45 lakh crore.
• Forex $ 361 Billion which is equivalent to sustain 12 months of imports.
• GDP stable at 7.3%. 
• Revenue Deficit stands at 1.9%

Key Hits from the Budget:

• Infrastructure Status accorded to Affordable Housing also redefining the unit sizes of 30 sq. mtr. and 60 sq. mtr. from built up area to carpet area. Projects in the direct municipalities of the four metropolitans to be considered for 30 sq. mtr. capping, rest all regions to have the capping at 60 sq. mtr. for affordable housing. 
• Affordable housing projects to be awarded a completion time of 5 years from launch as against the previous tenure of 3 years. 
• Developers to get one year’s time to pay tax on notional rental income on completed unsold residential inventory. 
• Tax benefits to the middle income group providing tax rate cuts of 5% for people in the income slab of INR 2,50,000 to INR 5,00,000. Additional reduction of INR 2,500 for people earning INR 3,00,000 annually making their total tax component zero. Reduction of INR 12,500 allowed on the final tax figures of remaining slabs. 
• Income Tax rate for MSMEs with turnover upto INR 50 crores reduced to 25% from the earlier rate of 30%.  
• Pradham Mantri Gram Awas Yojna to build 1 crore houses by 2019. INR 23,000 crores allocated for this financial year compared to INR 15,000 crores in the last financial year. 
• Pradhan Mantri Gram Sadak Yojna allocated funds of INR 19,000 crores which will cumulatively amount to INR 27,000 crores with the contribution from states. 
• INR 64,000 crores allocated for Highways against last year’s INR 57,676 crores. This would also include 2,000 Kms of coastal connectivity which have been identified. 
• A total of INR 3,96,135 crores have been allocated towards infrastructure development which is the highest in history. 
• Airports in smaller towns to come up on PPP model. 
• FDI norms to be further liberalised and online application to be enabled for FDI. FIPB to be abolished. 

Key Misses from the Budget:

• Industry status for the real estate sector. 
• Single window clearance system not yet operational Pan - India. 
• No changes in the exemption limit for income tax. 
• No changes in the savings or investments cap. 
• No cushion for the reduction in the rate of interest on loans borrowed by developers for building projects. 
• No major benefits announced for the allied industries like steel, cement, iron, sand, etc. that serve as the backbone for the raw material needs of the realty sector. 

Industry Reacts:

Avneesh Sood, Director, Eros Group

The government has yet again presented a Budget that will bring about a cheer to the masses. From favourable changes in the personal income tax structure to heavy investment plans for the infrastructure along with the according of infra status for the affordable housing segment and so much more, real estate sector is sure to directly and indirectly benefit from this budget in the near future. Amongst the big decisions, an outlay of almost 4 lakh crore has been planned for infrastructural development across the country, no tax for earners upto INR 3 lakh a year and no property tax for developers on unsold inventory till one year after completion certificate is issued. With such announcements, we are projecting the demand for budget housing to multiply that will also allow a positive drift in the momentum for the realty sector.

Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz

Announcement of infra status for the affordable housing segment in the Budget will open up new avenues for the developers planning to offer budget housing units and will make it easy and comfortable for them to get finance from lending agencies. Affordable housing developers will now be eligible for various government incentives and subsidies, where this infra status could also mean that the government might come out with land parcels for such development in future. With the basic slab of income tax now reduced to half the effect, people will have access to higher disposable income which can now be utilised for saving and investment purposes, where real estate will look attractive. Also, to promote foreign investment in the country, FDI is planned to be liberalised further.

Rakesh Yadav, Chairman, Antriksh India

The popularity and acceptance of this budget was clearly visible for the realty sector as we saw the real estate stocks driving the day in the share market. The decision of granting infra status for the affordable housing segment along with the rebate in personal income tax announced by the government will provoke the developers to shift their gears and develop affordable housing projects; which is now sure to meet the demand as well. One major issue faced by various builders across the major Tier 1 cities of the country is the inventory pile up. The tax break up of one year post the receipt of the completion certificate for the project, for the unsold stock, offers a slight breather for the builders. Overall, this budget looks quite favourable for the realty sector and its buyers in the long run.

Rajesh Goyal, Vice President CREDAI-Western U.P. & MD, RG Group

As anticipated, a populous budget has been announced by the government which will allow the young generation to save more and invest further. This budget saw the government offering several benefits to the realty sector, at the same time missing out on a few important decisions. Single window clearance system is still not implemented across the country which is hampering the delivery schedule of the developers. Amongst the major hits, the criteria for affordable housing has been changed from built up area to carpet area basis. This will allow affordable housing segment to look more lucrative for both, developers and buyers. With the income tax rebate for the first slab and affordable housing incentives in place, we will now observe the youth of the country looking out at realty sector as an avenue for investment or residing.

Abhishek Bansal, Executive Director, Pacific Group

With today’s budget announcement, the affordable housing segment and the retail industry will see the biggest boom. The moment tax structure is simplified and relaxed, the spending power of people increases and this spending is directly contributed towards either savings or investments. Although, the young earning age in India is expected to spend and invest more rather than save, thus retail industry will witness increased footfall in the upcoming financial year. Real estate sector on the other hand, will benefit from the affordable housing development and hence, developers will now be eager to plan accordingly. Buyers interest will now shift towards low budget houses as these units will now come with a reduced price tag with the developers gaining access to easy finance from lenders; well supported by recent rate cuts and announcements.

Ashok Gupta, CMD, Ajnara India Ltd.

With a mammoth budget investment plan for the infrastructure of the country announced, various untapped regions will gain connectivity with major cities. This development will further broaden the avenues for realty development across the country. Affordable housing has yet again been the prime target of the government as it looks to fulfil the dream of housing for all. With the initial tax slab relieved and infra status announced for the affordable housing segment, upcoming project launches will witness majority of affordable projects. In a nut shell, this budget will provide a massive thrust to India’s realty sector which has been picking up pace gradually over the years.

Ashwani Prakash, Executive Director, Paramount Group

Union Budget 2017-18 was likely to give some respite to the realty sector and it was highly expected that this sector might get industry status this year, but this has not happened. However, the FM has still taken an appreciable step in giving infrastructure status to affordable housing and increasing the scope of the same. The decision of increasing the period of completion for affordable housing projects from 3 to 5 years is also a welcome move. Reduction in interest rates for home loans is already in place, relaxation in the individual tax limit would also encourage the home buyers to come forward.

Pradeep Aggarwal, Co-Founder & Chairman, Signature Global

Driven with the view to provide houses to all at affordable rates, government’s move to grant infrastructure status to the affordable housing segment in the country along with the relaxation especially in the first slab of the personal income tax will not only spur growth in the construction of affordable housing but also enhance the demand for the same. As the disposable income increases, people will be inclined to invest towards property. With the lending interest rates lowered and purchasing power increased, we will witness a steep rise in affordable housing demand across the country, which will now be well met with the upcoming supply.