RBI repo rate hike: Indian realty developers unhappy with Raghuram Rajan, say will impact housing

Sep 20 2013, 18:58 IST
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'There was no need to increase the repo rate at this juncture.' (AP) 'There was no need to increase the repo rate at this juncture.' (AP)
Summary'There was no need to increase the repo rate at this juncture.'

Expressing disappointment over RBI Governor Raghuram Rajan's decision to hike the key policy rate, real estate developers said this would lead to increase in finance cost and also affect housing demand during the festive season.

"There was no need to increase the repo rate at this juncture. It will hurt the growth sentiment further," DLF Chief Financial Officer (CFO) Ashok Tyagi told PTI.

Asked about impact on real estate, Tyagi said the overall sentiment would remain cautious, but he believed that good products from credible developers on good locations would always have a demand.

RBI today raised the short-term policy rate by 0.25 per cent to keep "worrisome" inflation under check, a move that may increase EMIs for home and auto loans in the medium term.

Commenting on the policy, Parsvnath Developers Pradeep Jain said: "It is highly disappointing to see such a signal from RBI. Though increasing Repo by 25 bps (0.25 per cent) may curb inflation marginally or may hold Rupee for a while, it is going to impact market sentiments significantly".

The RBI had a golden chance to bring positivity in an otherwise sluggish economy, but this increase in rates would affect growth prospects, he added.

"It is not a good signal for the industry which is about to enter the festive season. Banks have already started raising their rates," Jain said.

Housing demand generally goes up during the festival season and developers major part of sales take place during this period.

Global property consultant Jones Lang LaSalle India Chairman and Country Head Anuj Puri said the hike in repo rate would lead to increase in developers' finance cost and affect their profit margin.

"In the current monetary policy, RBI has increased the repo rate by 25 bps, which will increase the borrowing cost. However, with reduction of MSF by 75 bps (0.75 per cent) and reduction of minimum daily maintenance of CRR from 99 per cent to 95 per cent, it has relaxed tightening norms," Puri said.

Increase in finance cost along with rising cost of construction and the already challenging economic scenario is expected to affect profit margins of developers, he added.

"While the real estate industry has reason to be somewhat disappointed on the increase in borrowing cost, RBI has made provisions for increased liquidity in the system," he said.

Terming RBI's decision as "unexpected", Griha Pravesh Buildteck CMD Abhay Kumar said the move would disappoint the banking industry and consumers who are struggling under the burden of high Equated Monthly Installments (EMIs).

"It would also dampen sentiments ahead of the peak festival season, when developers expect the demand for houses to go up. This is going to hurt both buyers as well as the developers," Kumar said.

Reacting to the RBI policy, real estate developers' apex body CREDAI's Chairman Lalit Kumar Jain said: "It is equally important for the RBI to promote economic growth by encouraging real estate and infrastructure development even as the new Governor has inflation on his mind."

RBI's move to raise repo rate would negatively impact sentiments, ultimately affecting sales, he added.

Realtors' body NAREDCO President Navin Raheja said: "All industries including real estate are struggling and facing huge liquidity crunch, high input costs and slow sales. Hike in repo rates will again lead to increase in borrowing cost and will result into further increase in input cost."

Tata Housing MD & CEO Brotin Banerjee said that banks can be expected to increase interest rates which will impact consumer sentiment in the real estate industry.

"If not through the monetary policy, the industry needs to be provided immediate relief through other fiscal measures. The government needs to have policies to drive real estate growth as this is the second largest contributor to our GDP," Banerjee demanded.

Assotech MD Sanjeev Srivastva said: "Looking at current situation of our economy, we were not hoping any rate cut in repo rate, but increasing repo rate is a bit surprising."

Expressing similar views, Ramprastha Group CEO Nikhil Jain said that the company expected a significant change in policy that would encourage borrowers and investors to lend money. The hike in repo rate would escalate project cost.

KDP Infrastructures Executive Director Anuj Goel said that the move is aimed at reducing inflation. "We need to closely watch how fast this could bring down inflation and ensure industry growth."

Home loans would be costlier after this move, having a direct bearing on the aspiring buyers as lot many people will refrain from buying homes, said Pankaj Jain, Director of Noida-based realty firm K World Group.

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