New Delhi, July 28: Apex realty body CREDAI has said the RBI’s decision to hike key policy rates will hurt both home buyers and developers badly, as the cost of borrowing will go up, leading to an increase in housing prices.
The Confederation of Real Estate Developers’ Association of India (Credai) said the RBI’s move to tighten liquidity to control inflation was “not appropriate” and the apex bank should rather take measures to address supply side constraints.
“The move has come as a surprise to us. We were expecting a moderate hike of 25 basis points, but hiking rates by 50 basis points is going to dampen the growth,” CREDAI Chairman Pradeep Jain said. He is also Chairman of Parsvnath Developers.
“This will make cost of funds expensive for both developers and buyers… As a real estate developer, we are not left with any choice but to pass on the same to our buyers, resulting in an increase in property prices, he added.
On housing prices, Jain said, “It is bound to go up,” but refrained from providing an estimate of the expected rise.
When asked about the impact on housing demand, he said demand would not be impacted much, as prospective home buyers would purchase flats of lesser value than what they earlier had planned.
Jain pointed out that business environment across industries has become complex because of hardening of interest costs, coupled with constant increases in input costs.
“We request the RBI not to increase the rate to any further extent. Instead, we appeal to RBI to stimulate measures for an improved supply chain management,” he said.
Echoing similar views, CREDAI President Lalit Kumar Jain said: “The cost of funding is going be higher as banks are bound to increase their lending rates.”
Jain said the housing shortage is estimated to rise to 37 million in the 12th Five-Year Plan from the current 24.6 million and the country would need USD 3.2 trillion to meet this shortfall.
“The funding gap in housing will be around USD 70 billion in the next five years among the existing developers alone,” said Jain, who heads Mumbai-based Kumar Urban Development.
Pointing out that the material costs have already gone up by over 35 percent and wages have doubled over the past three years, Jain said: “Any increase in the rate of interest will, thus, be counterproductive and my fear is that it will give rise to inflation instead of curbing it.”
Contrary to views of CREDAI, global realty consultants said the RBI’s decision to hike policy rates would hit housing demand as interest rate of home loan would go upwards.
“It was expected, though the magnitude still comes as a shock to the real estate sector,” Jones Lang LaSalle India CEO (Business) Sanjay Dutt said.
“The sector has taken a serious body-blow with the combined onslaught of increased cost of land and construction, eventually making finished real estate products more expensive. Increased mortgage rates will only compromise demand further,” he pointed out.
Dutt said demand would be hit in cities with higher purchase rates and ticket sizes will be impacted the most.
“Blue-collar home loan borrowers who have extremely limited budgets and have already been struggling with the high cost of real estate will be hit severely because of this increase of interest rate,” he said.
Cushman and Wakefield Manging Director (India) Anurag Mathur pointed out that the change in the rates will further negatively affect the end?users capacity to raise debt and subsequently service it.
“With high demand markets such as Delhi and Mumbai already feeling the heat of a moderate slowdown in demand from end users, this will further affect purchase,” Mathur said.
—-PTI