The tragic debacle around CCD’s debt-ridden founder may be indicative of a larger malaise
Rentals can eat away almost 15-20% of the overall revenue an Indian coffee shop generates
Corresponding costs in countries like the US is just around 5-6%
many indigenous coffee shops are unable to survive more than 18 months into the business
From the early morning dose to business deals closed over a cup of java, coffee keeps us charged; the millennial coworking culture is often incubated and based in cafés. As a consequence, there has been a stupendous rise in the number of coffee chains and concept bistros across the country.
It all started with Café Coffee Day – popularly known as CCD – which gave the country its first coffee shop way back in 1995, long before global giants arrived.
Today, places like Café Coffee Day are no longer just hangouts or meeting joints, and certainly not just about coffee. They offer a unique ambiance, music and free Wi-fi to youngsters and entrepreneurs alike.
Along with the resale homes market, luxury housing took the hardest hit after demonetization. The Government’s continued focus on affordable housing coupled with the surgical strike on high-value currency denominations in November 2016 took the sheen off luxury housing for two years in a row.
The hard facts of declining consumption and a deepening economic slowdown in India are inescapable, and real estate has been severely impacted by them. To this gloomy backdrop, the RBI’s repo rate cut of 35 bps to 5.4% announced in the latest monetary policy is obviously welcome.
This rate cut, the fourth consecutive cut since February 2019, is meant to boost consumer sentiments once commercial banks transmit the benefits to actual consumers.
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. On the other hand, demand for affordable housing, which accounted for 2.40 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives.
Even minor downward revisions in interest rates can and do make a difference in affordable housing. If banks transmit this reduction in the prime lending rate to consumers, budget housing demand may improve. Likewise, housing demand in tier 2 and tier 3 cities,
Overall consumption in India has taken a serious beating in the recent past, and the RBI needs to give a serious booster shot to hike up consumer sentiments.
A massive rate cut of at least 50 bps in the upcoming monetary policy could be meaningful since a cut of such magnitude would make it feasible for commercial banks to lower the interest rate substantially.
At the end of the day, only significant transmission of a repo rate cut can help revive much-needed consumer demand.
Real estate is a highly cost-intensive investment and demand for it will only pick up if the cut is deep enough to result in significant cost savings on home loans.
Over and above, even if a cut in the repo rate happens, banks will need to percolate it down to borrowers.
Also, it does bear keeping in mind that it is not only affordability but other factors such as low ROI and lack of confidence in under-construction projects that have impacted housing demand in recent times.
Reduced interest rates alone may not help kick-start a wholesale revival in housing demand for all budget segments.