The Reserve Bank’s decision to raise key policy rates by 25 basis points today is likely to have a negative impact on the real estate sector, so say industry insiders.
Real estate developers, already reeling under the pressure of increasing input costs, feel that rate hike by RBI will help increase inflation rather than curbing it.
Lalit Kumar Jain, national president, Confederation of Real Estate Developers’ Associations of India (CREDAI) said, “Rate hike will only give rise to inflation rather than curb it. Unless proper reforms are brought in housing, the result will be chaotic urbanisation.”
Naveen M Raheja, chairman, Assocham real estate committee and CMD, Raheja Developers said, “As the cost of money goes up, the cost of construction and production will also go up. This will lead to further inflationary pressures.”
With financial institutions predicting further rate hikes in future, the developers are worried.
Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India says, “The RBI’s hiking of the repo rate by 25 basis points is far from good news for the real estate sector, especially in terms of housing. Purchasing activity had already dropped visibly during the last tranche of interest rate hikes, and we will see a further drop in buyer interest now. As for developers coming down on their prices to counter the negative effects of this hike, a lot depends on the financial ability of individual developers to hold on to their current pricing and risk losing sales till the situation improves. Developers with enough capital bases are less likely to relent on their pricing than smaller developers with an urgent need to sell their stock.”
NAREDCO has also reacted on the hike. In a release the association says rising inflation, primarily due to rise in food and commodity prices, is showing no sign of possible upward revision in fuel prices and higher support prices of food grains. In fact inflationary trend has enveloped the manufactured goods as well, which is visible from the rise in its prices in last 2-3 quarters.
Demand for property which is already on decline in almost all markets is further going to go down, because of high cost and buyer apathy. In fact there is no sign, as yet that interest rates will not rise further and come down to comfortable level in near future. This uncertainty will lead to drastic slow down in construction activities and possibly a reduction in employees’ strength of real estate companies.
