As the Reserve Bank of India meets to review its monetary policy tomorrow, Thursday, the realty sector is getting panicky that if there is a rate hike the sector may see some more pains in the coming days. It is believed that a rate hike is inevitable given the current inflation situation.
The other rate sensitive sector—auto—may not suffer to the same extent. Between November 8, 2010—when the 30-share Sensex rose to intraday high of 21,076—and March 15 2011, Realty index plunged a whopping 45% while the auto index plummeted 16%. During the same period, Bankex fell 18% and the broader index recorded a fall of 13%.
The RBI is expected to go for a 25 basis points hike and interest rates may continue to rise till monsoon. Banks may have to face a moderation of 25-50 bps in their net interest margins in the next 2 to 3 months as short term money is going to be costlier.
With banks unlikely to extend loans to realty sector and the common man’s inability to buy the absurdly-expensive homes, the realty sector is likely to remain suffer in the coming months.
Atul Modak, Head of Mumbai-based Kohninoor City says the impact on realty is already very bad with all the banks increasing the interest rate. Any further hike is like adding insult to injury. “Real estate is already under pressure because of high taxes, and while the hike is aimed at controlling the inflation, it will have a very bad impact on the sector. Now that loan amount has also increased, the sector will definitely have some pains,” he says.
It may be recalled that the RBI has made it tougher for banks to provide high value loans to properties costing over Rs 75 lakh. The central bank had also raised the provision requirement for loans. In the last one year, RBI has hiked repo rate and reverse repo rates by 150 bps to 6.5% and 200 bps to 5.5% respectively. Repo is the rate at which banks borrow from RBI and reverse repo is the rate at which banks park their surplus money with RBI.
