Real estate to gain most from rate cut

Being a rate-sensitive sector, realty has been under stress over the last couple of years as high rates kept home buyers away.

Written by Sandeep Singh | Bhubaneswar | Published:January 16, 2015 2:34 am

The real estate industry is set to be the clear gainer from the surprise cut in repo rate.

Being a rate-sensitive sector, realty has been under stress over the last couple of years as high interest rates kept prospective home buyers away, which added to the developers’ woes as unsold housing stock kept piling up.

With the Reserve Bank (RBI) setting the tone for more rate cuts, there is expectation of the much awaited pick-up in activity. On Thursday, real estate developer DLF and India’s largest home financier HDFC were among the top gainers at the BSE.

The DLF stock closed with a 10.8 per cent gain while HDFC was up 7.3 per cent.

A look at the movement in Residex (the housing price index prepared by the National Housing Bank) and the interest rate cut by the RBI in the past also establishes the correlation.

In the period between April 2012 and May 2013 when the RBI cut repo rate by 125 basis points from 8.5 per cent to 7.25 per cent, home prices shot up — evidence of an uptick.

The Residex value in Jaipur rose by almost 35 per cent and that in Pune, Delhi and Mumbai rose by over 10 per cent representing an equivalent average hike in home prices during that period.

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