See impact of rate cut in six months: Orbit Corp

The Reserve Bank of India (RBI), in its annual monetary policy for 2012-13, slashed the policy rates by 50 basis points.

Pujit Aggarwal, managing director, Orbit Corporation says the positive announcements made by the finance minister and the cut in repo rate by the RBI will boost the sentiment . In an interview to CNBC-TV18, Aggarwal advises investors to wait for atleast six months for the impact of the rate cut to kick-in. He indicates that the day’s positive announcements have also pepped up the demand sentiment in the premium real estate markets of Delhi and Mumbai. However, Aggarwal says that the prices of real estate in Mumbai will remain at present levels. Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: What is your assessment of 50 bps repo cut and how much do you think it will stir demand? A: These are the positive noises that we were expecting both the RBI and the government to make. In the morning, the finance minister made positive announcements which were followed by 50-basis points cut. It is sentiment and it is this sentiment which will spur demand.  These 50 basis points will have a minimal impact on housing loans to consumers and on loan portfolios, immediately. But if you see over six months, we may find these 50 basis points expanding to over 200 basis points, which is 2-2.5%.  After a period of six months, with the real impact in the portfolios come to the fore. The cost of borrowings will come down both for the consumer as well as for the developer. So overall, there is positive sentiment and this will help spur demand. Q: In the immediate short-term, you are not expecting even a token 25 basis points in rates from banks? A: When I said that the impact would be minimal, I did not say that it would be nil. There would be at least half a percent to at least three-quarters of a percent fall in rates for our borrowings. We will see rates coming down for housing loans to consumers. But really the real impact, in terms of what affects your wallet, is going to be 2-3%. Q: How much do you think the premium real estate markets such as Mumbai and Delhi are actually even affected by the tightening which underwent for the past three years? When exactly do you see demand increase in the short-term? A: This is a two-pronged question. One, from the supply side there are difficulties in terms of laws and permissions which have not come in time and delays which have led to price increases.  But as far as the demand is concerned, the sentiment was weak. But with these positive announcements and expected policy changes - especially in Mumbai, there will be some positive traction towards sales which is already happening.  So where there was a stalemate, there was status-quo. There was hardly any movement in 2011, but in 2012 we are seeing some positive traction towards sales at present levels. Q: Do you see any big difference in real estate prices at all or do you expect it to be status-quo? A: In a city like Mumbai, I would like to break it up into residential; where residential would be status-quo. Commercial office space has gone down by 20%-25% and that would remain where it is today. So I don’t think it would go down further. Mall space has come down by 15-20% and street-level shopping has remained status-quo. So I think that level would remain stable in 2012.