The latest 50 bps hike announced by the Reserve Bank of India on Tuesday is expected to further dampen sales in the real estate sector. Developers say the hike will impact sentiment in the short term, and are now pegging their hopes on the festive season starting October for a demand uptick.
According to Niranjan Hiranandani, co-founder and managing director, Hiranandani Group, the hike is counter productive, since interest rates will now begin to hurt, impacting living standards. "People have deferred their purchase decisions, so it is the pent up demand that has been created in the system. This hike will not curtail inflation, instead it will throw marginal buyers out of the market," he cautioned.
"The hike will definitely dampen consumer sentiment. However, we are confident that given the steady monsoon, this would be the last hike before the interest rates start cooling off. We hope that as the festive season starts, the interest rate scenario will be more favourable," said Pujit Aggarwal, managing director & CEO, Orbit Corporation.
Pirojsha Godrej, executive director, Godrej Properties was more optimistic. "While increased rates are clearly a dampener for the real estate sector, we are hopeful that the interest rate cycle is at or near the peak and we remain confident about the strong prospects of the sector in the year ahead."
Some developers were very categorical that this fresh increase will lead to a further hike in property prices. “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. Also this (rate hike) will make the cost of funds expensive for both developers and buyers coupled with constant increases in the input costs, making the business environment very complex across industries," said Pradeep Jain, chairman, Parsvnath Developers Limited.
In what would explain the dire straits that the sector is in, the Maharashtra Chamber of Housing Industry (MCHI) has appealed to the various home loan institutions and banks to absorb the impact and not to pass it on to the end customers.
“Bankers have systematically raised home loan interest rates as and when RBI hiked the repo rate, and we strongly feel that they should consider the home buyers’ interest,” said Paras Gundecha, president,, MCHI.
Sales of new residences across India fell 10% sequentially in the quarter ending June for the calender year 2011, as per