Real estate, auto companies to bear the brunt of interest rate hikes

Niranjan Hiranandani, managing director of Hiranandani Group, said the RBI had to ensure that inflationary pressure on the individual did not get exacerbated by higher rates on home loans

Real estate and automobiles, which were showing signs of a nascent recovery, will bear the brunt of higher interest rates following the central bank’s rate hike because customers will delay buying new homes and cars. Real estate developers fear home loan rates, currently between 6.6 and 6.9 per cent for top lenders, will rise.

Niranjan Hiranandani, managing director of Hiranandani Group, said the Reserve Bank of India (RBI) had to ensure that inflationary pressure on the individual did not get exacerbated by higher rates on home loans. “Inflation rates in India have been beyond the RBI’s upper band of tolerance and the rationale of the move makes sense but we hope that home loans would not get impacted,” Hiranadani said.

Samantak Das, chief economist, JLL, a multinational real estate advisory and research firm, said the surprise hike wo­uld have a negative impact on real estate. Developers relying on external sources for funds may also feel the heat as their cost of borrowing will rise with banks expected to raise rates. The RBI move comes when the real estate industry was recovering. According to Knight Frank India, in Mumbai there were registrations of 11,744 property units in April and the state’s tax revenue collection from home sales was the best in a decade in the same month. 

Some players, however, are not too worried. Sanjay Dutt, managing director, Tata Realty & Infrastructure, said: “Most homebuyers will see this as a trend and try to buy earlier rather than regret and buy later at higher prices.”

Other real estate developers played down the impact.

Vikas Oberoi, chairman and managing director of Oberoi Realty, said the rate hike would not affect the market. The Oberoi Realty stock fell 3.3 per cent after the announcement.

The automobile industry too is apprehensive about the hike.

Vinkesh Gulati, president of the Federation of Automobile Dealers Association, said: “Wh­ile the car segment may be able to absorb this shock, two-whee­lers will not be able to take one more blow of higher vehicle loan costs.” Several heads of firms were closeted on Wedn­esday with their finance heads to find the impact of the rising rates.

Rajiv Agarwal, managing director (MD) of Essar Ports, said: “The move will ensure taming rising prices and not affect the recently observed revival of the economy.”

Suneeta Reddy, MD of Apollo Hospitals, said the increase in the repo rate was at a cost to both the industry and consumers.

“Inflation has not been fuelled by excess liquidity but by supply constraints due to the global economic and political environment. We need to sha­rpen our focus on how we can ease our dependence on international supply chains by building our own and at the same time protecting and insulating the economy from demand side pressures.”

With inputs from Arindam Majumder & Sohini Das