The cost of construction in the country is set to go up, which in turn will adversely affect the demand for houses as a result of impending interest rate hikes by banks and finance companies after RBI hiked its key policy rates on Tuesday.
“The sentiments are low in the real estate sector and any more increase in rate will not boost the growth in this sector,” said Lalit Kumar Jain, national president, Confederation of Real Estate Developers’ Association of India (Credai). Any rate hike is a double whammy for the real estate sector, which is already reeling under the pressure of high input costs. Increase in interest rate will add to the woes of the sector, he added.
Increase in rate will adversely affect the capacity of end–users to raise loans and service them with banks, which are expected to raise interest rates on home and other loans soon, said Anurag Mathur, MD of Cushman & Wakefield India, a leading real estate consultant. With high-growth markets such as Delhi and Mumbai feeling the heat of a moderate slowdown in demand, an interest rate hike will affect purchase decisions. Rate hike will also hit developers who are facing reduced demand, lower credit flow from institutional financiers and rising cost of construction.
“Increase in rates by 50 basis points announced today is harsh. It came as a shock to the real estate sector. This increase is expected to impact growth,” said Sanjay Dutt, CEO - business, Jones Lang LaSalle India.