Housing prices may go up by 5-10% with RBI rate hike

Housing prices may rise by 5-10% in the next 3-6 months as the cost of funds for developers is expected to increase following the Reserve Bank of India's decision to raise key policy rates by 25 basis points.

"Property prices are bound to go up in next 3-6 months by 5-10% across the country," Confederation of Real Estate Developers' Associations of India (CREDAI) chairman Pradeep Jain told PTI.

Jain, who is also the chairman of Parsvnath Developers, said the hike in repo and reverse repo rates would result in an increase in interest rates for builders and the same would be passed on to home buyers.

He, however, said demand would not be hit despite the expected rise in interest rates on home loans. "People will continue to buy knowing that housing prices would go up further," he said.

Instead of demand, Jain said supply would be affected, as the increase in interest rates would impact the liquidity situation of small developers.

Asked about impact of the hike in repo and reverse repo rates on the realty sector, DLF Group executive director Rajeev Talwar said, "The constant increase in interest rates over the last one year would definitely have an impact", and suggested that the government initiate reforms to boost the supply of housing.

The Reserve Bank, for the tenth time since March, 2010, raised the repo rate by 25 basis points to 7.5% and the reverse repo rate by a similar margin to 6.5% today.

Echoing similar views, Credai president Lalit Kumar Jain said, "Any increase in the rate of interest will be counter- productive and my fear is that it will give rise to inflation instead of curbing it."

"... The cost of funding from the developers' point of view would also shoot up. This will be passed on to the customer, who is already under stress," Jain, who heads Mumbai-based Kumar Urban Development Ltd, said.

Raheja Developers chairman and managing director Naveen Raheja said: "As the cost of money goes up, the cost of construction and production will also go up. This will lead to further inflationary pressures."

The need is to increase supply so that demand pressures can be eased and consequently, the prices are curtailed, he added.