At a mid-quarter policy review meeting in Mumbai today, India's new Reserve Bank governor Raghuram Rajan ordered a rise in the benchmark interest rate from 7.25% to 7.50%, a move that realtors say will have a negative impact in a stressed environment that is already plagued by slowdown in sales, increasing input costs, liquidity issues and high costs of capital, etc. “The present policy move is expected to further dampen investor sentiments, especially in the residential real estate sector.
The State Bank of India took cues in advance from the present economic situation and hiked its base rates for home and auto loans yesterday. The burden of inflated EMIs may deter buyer sentiments in the upcoming festive season too, perhaps prolonging the demand stasis in the real estate sector,” said Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt Ltd.
“Such a policy structure—relying entirely upon influencing demand side trends by hiking interest rates—could result in long-term stagnation in investments in the economy,” he warned.
Developers apex body CREDAI chairman Lalit Kumar Jain said that raising repo rates will negatively impact sentiments and ultimately affecting sales, adding it will be tough for developers to work in a high interest regime which can also lead to high NPAs.
Pankaj Bansal, director of M3M India, was of the view that RBI’s decision to increase the repo rate by 25 bps will further increase the cost of borrowing and owning home will become more costly. This will put the real estate sector in more difficult situation … it is going to hurt both buyers as well as developers.”
Navin M Raheja, president, NAREDCO and CMD, Raheja Developers Limited, said that the increase in repo rates will again lead to increase in borrowing cost and will result in an increase in input costs. “We were expecting that the RBI will not change the repo rate and will take measures to increase the liquidity in the market by reducing CRR and other necessary measures. But no such step has been taken,” he adds.
Neeraj Gulati, managing director, Assotech Realty Pvt Ltd, said that the decision of the apex bank will pull back the development process and escalate the cost of units at a substantial rate, the policy would bear a retrospective impact on real estate as a whole.
Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, said that the government needs to implement necessary reforms that ensure speedy development of infrastructure necessary for growth of the markets, improvements and more transparency in the regulatory processes, improved access to funding sources for both developers as well as buyers and better regulation of the industry on the whole and better management of the economy.