Home prices may go up on rising cost of funds

Housing prices are set to go up as real estate developers today said they will pass on the increase in cost of funds to home buyers following the Reserve Bank of India's decision to hike key policy rates.

"RBI has put us in a sorry situation. It is a vicious circle of higher input cost, higher borrowing cost and higher property prices. We are bound to pass on the increased cost of funds to our customers," Confederation of Real Estate Developers' Association of India (CREDAI) Chairman Pradeep Jain said.

The rate hikes will further tighten the source of funding required for running the business, he added.

Jain, however, said increase in interest rate is unlikely to impact demand as there is a shortage of housing in the country.

"We urge the apex bank, tot to hike rates any further as that will certainly choke industrial output, thereby putting a halt to economic growth," said Jain, who is also the Chairman of Parsvnath Developers.

Expressing similar sentiments, CREDAI National President Lalit Kumar Jain said the frequent rate hikes will prove to be counterproductive since the move will have a "cost-push impact rather than proving to be an inflation control measure".

"The rates of interest are bound to zoom and this will further weaken the sluggish demand in real estate sector," he said, asking the government for immediate steps to initiate reforms in real estate like transparency and single window clearance system.

CHD Developers Managing Director Gaurav Mittal said multiple rate hikes have fueled negative sentiment in the real estate market.

Besides, the rise in input costs, which is a supply side issue, cannot be corrected by monetary measures, he added.

"Certain segments of real estate market especially the luxury segment has been slow. However, the mid-segment residential sector is strong and will continue to show growth in the time to come," Mittal said.

Emaar MGF Land Executive President (Corporate Affairs) Sanjiv Saddy asked the RBI not to increase rates further as it will not help industry come out of the "quicksand".

"Rather it will further burden it (industry) and may finally become a reason for economic collapse," he cautioned.

In its policy review meeting today, the RBI hiked interest rates by 25 basis points. The short-term lending (repo) and borrowing (reverse-repo) rates now stand at 8.5% and 7.5%, respectively.