Moneycontrol
| Source: CNBC-TV18

Rate cut evokes mixed reaction from realty biz

CNBC-TV18’s Priyanka Ghosh reports that the rate cut has evoked mixed reaction from the real estate sector. While affordable loan rates might spur demand, there are concerns that companies might derive benefits from lower rates.


The rate cut has evoked mixed reaction from the real estate sector. While affordable loan rates might spur demand, there are concerns that companies might derive undue benefits from these lower rates, reports CNBC-TV18's Priyanka Ghosh.


There is no doubt that the 50-basis point cut in rates is a ray of hope for the real estate sector. There is now an expectation that buyers who have been sitting on the fence waiting for a rate cut, will finally take the plunge and buy homes. And that developers will be encouraged to launch new projects.


Also read: RBI rate cut: No immediate relief for home loan customers


However several industry experts are skeptical. A relief in the balance-sheets of companies is hardly likely. The real estate industry, which pays on an average 13% interest rate on loans, is expected to see its interest cost on an annualised basis come down by 3-4%.


For highly leveraged companies such as DLF, it will mean Rs 120 crore less in interest cost payments.


In all, according to a CNBC-TV18 estimate, the top ten listed real estate companies, with a debt burden of Rs 38,182 crore and bearing an interest cost burden of nearly Rs 5,000 crore annually, will be able to save only Rs 200 crore.


This stress in the balance sheet would have eased if the RBI had left any indication of a further reduction in rates. But unfortunately, the RBI's tone suggests quite the opposite.

So the expectation of  a price reduction is low. On the contrary, some feel that prices might now increase as the trigger eagerly looked forward to, is already over.

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