No major impact on real estate sector for now

The hike in key policy rates announced by the Reserve Bank of India (RBI) yesterday is unlikely to have an immediate impact on demand for homes unless loan rates rise, say industry officials and analysts.

RBI yesterday hiked the repo rate by 25 basis points (4.75 to 5 per cent) and the reverse repo rate by a similar margin (3.25 to 3.5 per cent) in a bid to control inflation.

If inflation is not tempered, real estate companies fear interest rates may rise sharply, which will erode the demand for homes. “We have to wait and see if interest rates harden. As of now, there have been no announcements and so presently I would say that it will not have a major impact on the housing sector,” said Rajiv Talwar, executive director of DLF, the country’s largest real estate developer.

Some developers say the low to middle income housing segment will be impacted more if interest rates rise. “The impact of this will take some time, till banks decide to announce an increase in interest rates on home loans. I feel low- and middle-income buyers will be then discouraged to buy houses,” said Kunal Banerji, executive director, marketing, TDI Infrastructure, a developer in north India.

Industry analysts say the real concern is inflation. “This increase of 25 basis points in repo and reverse repo rates will not impact the housing sector a lot. We may witness a nominal increase in interest rates by banks by March-end. The concern, though, is that if inflation doesn’t come down, RBI will be forced to increase rates again by 50-100 basis points, and that will have a major impact on housing loan rates,” said Ravi Ahuja, executive director, project marketing development services, Cushman & Wakefield.