Reaction to RBI's cut in lending rates

By Om Ahuja, CEO - Residential Services, Jones Lang LaSalle India

While the rate cut of 50 basis points is definitely a ray of hope, this ray does not dispel the shadows nearly as much as may be initially supposed. It should be borne in mind that the RBI has hiked interest rates a total of 13 times between March 2010 and October 2011. While this is understandable, given the ongoing concerns over inflation and excessive liquidity on the market, this spate of rate hikes as created a compounded problem for the residential real estate sector whose effects are not easily dispelled. We do expect that there will be a marginal increase in home loan borrowings because of this positive move. That said, the series of hikes in the past have also affected the price that builders put on their properties, since their own cost of borrowing has increased. It is unlikely that property prices will come down because of this rate cut, and it is the price of properties that is the decisive factor in residential real estate sales. In fact, it is very likely that there will be an upward bias on property rates because of the anticipated improvement of sentiments with buyers who have so far been sitting on the fence, waiting for some signals of relief.

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