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Just rate cut not enough to boost realty market: Developers

The hard facts of declining consumption and a deepening economic slowdown in India are inescapable, and real estate has been severely impacted by them.

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Real Estate Sector

Mumbai, Aug 7 (IANS) Real estate developers have joined the industry chorus to welcome the 35 basis points (bps) cut in repo rate but market players and experts also stressed the fact that the mess in the construction sector and the ongoing demand slowdown is of such magnitude that only a rate cut is unlikely to boost subdued sentiments.

Anuj Puri, Chairman of Anarock Property Consultants, said that the hard facts of declining consumption and a deepening economic slowdown in India are inescapable, and real estate has been severely impacted by them.

“For real estate, a rate cut of 35 bps is, however, insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities,” he said.

Puri said that on the other hand, the demand for affordable housing, which accounted for 2.4 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said: “In light of the present economic distress in the country, we welcome the move to bring down repo rate by 35 bps… however, we would have really expected to see a more substantial cut is the need of the hour for its effective transmission to end users.

While it is the fourth consecutive rate cut this year and is in line with RBI’s recent shift to an accommodative monetary policy stance, it may not be sufficient to give the required impetus to the stalling consumption numbers, he added.

More needs to be done to provide a liquidity stimulus to the broader real estate spectrum, Baijal said.

Mani Rangarajan, Group Chief Operating Officer of Housing.com, said: “How far these rate cuts will succeed in spurring consumption is something only time will tell. However there is no denying that in the mid-income and affordable housing segments which are very price sensitive, these rate cuts can boost sentiment and sales, provided they are passed on to the end-users by the banks.”

As ideally the reduction in repo rate, the rate at which the RBI lends to banks, should lead to further reduction in retail loans to the common man, developers are hopeful that the rate cut would eventually be transmitted to the consumers and demand for home loans and properties would increase.

“RBIs move will reduce the outgo in terms of EMI for the borrowers, benefitting the home buyers, which will surely boost confidence in the segment bringing in the much-awaited momentum in sales,” said Manoj Paliwal, CFO, Omkar Realtors & Developers.

Surendra Hiranandani, Chairman, House of Hiranandani, was of the view that going forward, it would be imperative for banks to reduce the lending rates and ensure that home loan borrowers reap the benefits of this move.

Amit B. Wadhwani, Co-Founder of realty consultancy firm, SECCPL said: “We believe that more banks will practice the revised rates while lending. This will help sell the inventories at a faster pace, and it will also encourage developers for new launches.”

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Auto component industry’s turnover falls over 10% in H1

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Auto sector slowdown

New Delhi, Dec 6 : The slump in vehicle sales adversely impacted the financial performance of India’s auto component manufacturing industry during the period between April and September 2019, industry data showed on Friday.

According to data furnished by the Automotive Component Manufacturers Association of India, the industry turnover during the period under review declined by 10.1 per cent to Rs 1.79 lakh crore ($26.2 billion) over the first half of the previous year.

The industry body cited factors such as subdued vehicle demand, recent investments made for transition from BSIV to BSVI emission norms, liquidity crunch, lack of clarity on policy for electrification of vehicles among others, that adversely impacted the expansion plans of the sector.

However, auto components’ exports grew by 2.7 per cent to Rs 51,397 crore ($7.5 billion) in H1 2019-20 from Rs 50,034 crore ($7.3 billion) in H1 2018-19.

“Europe accounted for 32 per cent of exports followed by North America and Asia, with 30 per cent and 26 per cent respectively,” the association said.

“The key export items included drive transmission and steering, engine components, body or chasis, suspension and braking etc.”

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Saudi oil giant Aramco announces world’s largest IPO

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Saudi Aramco

Riyadh, Dec 6 : Saudi Arabian state oil giant Saudi Aramco on Thursday priced its initial public offering (IPO) at the high end of the targeted range, a level that will allow the company to raise a record total of at least $25.6 billion.

The company plans to sell 3 billion shares, or 1.5 per cent of its total shares, at a price of 32 Saudi riyals ($8.53) per share.

This IPO’s size gives Aramco a market valuation of $1.7 trillion, pushing it ahead of Apple ($1.17 trillion) as the world’s most valuable publicly traded company, Efe news reported.

Trading of Aramco’s shares is expected to begin next week pending an announcement by Riyadh’s stock exchange.

Aramco had previously announced that its shares would not be offered in the United States, Australia, Canada or Japan.

Saudi Arabia has pursued a commitment from wealthy Saudi citizens and regional allies to purchase shares as a gesture of solidarity and goodwill as opposed to an investment decision.

Meanwhile, the kingdom’s banks were directed to double the leverage limit for loans to investors looking to buy Aramco’s shares. Compared to an average leverage-ratio limit for loans of 1 to 1, banks were allowed to lend to retail customers for this purpose at a 2-to-1 ratio.

The company will offer 33.3 percent of the available shares (0.5 percent of Aramco’s total shares) to retail investors, while the remaining 66.7 percent have been allocated for institutional investors.

The IPO was 4.65 times oversubscribed, with total bids of $119 billion, according to sources close to the process.

An additional 450 million Aramco shares could be sold under an over-allotment option for underwriters, which would bring the total amount raised to nearly $30 billion. The previous record IPO ($25 billion) was set in 2014 by Chinese online commerce company Alibaba Group Holding.

Trading of the shares is expected to commence after all relevant legal requirements and procedures have been completed.

The company plans to pay a base dividend of $75 billion in 2020. However, it has cautioned about investment risks that include fluctuating oil prices and the backlash faced by oil companies due to their role in climate change.

The sale has been bolstered by Saudi Arabia’s regional allies, whose participation was a relief to the kingdom after plans to market the IPO globally floundered.

Proceeds from the IPO are needed as the kingdom aims to diversify its economy away from oil and implement domestic socio-economic reforms.

Aramco’s IPO plans were put on hold last year in preparation for Saudi capital market reforms. No information currently exists on where the IPO will be listed abroad.

The IPO may encourage other Gulf Cooperation Council (GCC) state oil companies to carry out their own initial public offerings; however, Abu Dhabi-based ADNOC is expected to only list the shares of its subsidiaries.

Aramco reported net income of $111.1 billion in 2018 and $46.9 billion in the first half of 2019.

The company suffered a damaging drone and missile attack on some of its oil-processing facilities in September of this year.

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RBI holding repo rate bodes well for savings: Economists

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Reserve Bank of India RBI

New Delhi, Dec 6 : Even as many see the RBI’s pause on repo rate as a setback for the growth, some economists argue that any further cut could have affected households savings which have already seen a decline in recent times.

“Reduction in interest rate will work negatively. The interest rate is like a double-edged sword. It will have an impact on savings and it will have an impact on investments. We know very clearly that it does not have much impact on investments. Now, what is it doing? It is basically hampering the savings,” said N.R. Bhanumurthy of the National Institute of Public Finance and Policy (NIPFP).

He also said that monetary policy is not just about interest rates.

“There are many things which monetary policy does. It can ensure that credit flow is better and the banking sector is in good shape. They can create money supply. So, it can do many things. They have to now see how savings could be improved,” the NIPFP professor said.

M. Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said that transmission of the reduction in the policy (repo rate) requires the lending rates to fall. Further, that would also require the deposit rates to fall, which could result in reduced saving by households.

“When the inflation rate is perking up, if the banks also reduce the deposit rates, the rate of return on savings will decline which could not only reduce the incentive to save but also can hurt the elderly who maintain themselves from the interest income,” he said.

As per Economic Survey of FY19, gross savings fell nearly 60 basis points as a share of GDP in two years to 30.5 per cent in 2017-18. Household savings led the decline as its share contracted from as high as 23.6 per cent of GDP in 2011-12 to 17.2 per cent of GDP in 2017-18.

“The household sector savings declined from 23.6 per cent of GDP in 2011-12 to 17.2 per cent in 2017-18 and its net financial savings and a ratio of GDP declined from 7.2 per cent to 6.5 per cent during the same period. Thus, besides inflationary expectations, ensuring adequate real rate of return on the savings could be an objective of keeping the repo rate constant,” Govinda Rao said.

As against market expectations of a rate cut, the RBI on Thursday maintained the policy repo rate at 5.15 per cent. With this, the reverse repo rate also stands unchanged at 4.9 per cent. The Monetary Policy Committee (MPC) was unanimous in its decision to maintain status quo on both rates and ‘accommodative’ stance.

(Nirbhay Kumar can be contacted at [email protected])

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