Developers predict further slump in realty sector

The successive rate rise by the Reserve Bank of India (RBI) to tame inflation has left the real estate sector frowning.

The industry, already struggling with shortage of labour and high input cost, is threatening to pass on the rise in rate to buyers, but has stopped short of giving an estimate on how much property prices could go up.

Most developers are experiencing a slump in sales by 60-70 per cent, but the hope of a revival during the festive season seems dim now following the 25 basis point increase today.

Pradeep Jain, Chairman, Confederation of Real Estate Developers’ Association of India (CREDAI) and chairman of Parsvnath Developers, said he was not expecting any surge in sales during the festive season. “We normally see good buying in the festive seasons, but these rate increases have made the cost of funds expensive for the developers and buyers. Hence, we may not see the buying spree this time,” he said.

“Everything goes up again with this move, which will be passed on to buyers. Also the cost of taking a home loan. These rise have so far not made any impressive dent on inflation,” said Sanjay Dutt, CEO (Business), Jones Lang LaSalle India.

On an average, the interest rates for home loans have gone up by three-four percentage points in the last 18 months.

R R Singh of National Real Estate Development Council said the rise had made matters worse, and home buyers were deferring their purchase plans. “Developers would be hit hard as the credit interest rate escalates,” he said. Refusing to indicate a range of increase, Singh said property prices would touch the roof now.

Dutt said construction activity could slacken further, which is definitely not a good news for the overall GDP growth. “Construction activity will decrease and the real estate sector will be forced into an even more defensive position,” he said. He said the small developers might find themselves edged out of the business altogether due to the combined onslaught of increased production cost and reduced demand for their offering.

Brijesh Bhanote, Director, Sales and Marketing, 3C Company (a real estate company), said the RBI's move may dampen sales in the housing sector.

“As a real estate developer, one is not left with any choice but to pass on the same to the buyers, resulting in an increase in property prices,” said Bhanote.

However, Arjun Puri, Director, Puri Constructions, offered a contrary view. The successive rate rise have not impacted property sales at all, he said. “Investors might defer the decision, but home buyers are not deterred by it,” he said.

“Consumers will keep buying ready-to-move in property or property where they believe that completion is imminent. Plots are another market that will not be much affected by the rise in interest rates,” said Sanjay Sharma, managing director, Qubrex, a real estate consultancy firm.