Move to raise repo rates to hit realty sector: Developers

They complain about declining home sales in many cities such as Mumbai due to high prices and slow economic growth

Reserve Bank of India's move to increase repo rates will hit property sales further, said realty developers today. They are already battling declining home sales in many cities such as Mumbai due to high prices and slow economic growth.

Today RBI governor Raghuram Rajan increased repo rates by 25 basis points to 8% contain inflation.

“Higher interest rates - an outcome of the third quarter policy review, will affect investment in the realty sector. Demand for housing has already been sluggish for quite some time and the RBI move is likely to make matters more difficult for an industry.”said Brotin Banerjee, managing director and CEO, Tata Housing.

“It is a highly disappointing step by RBI to raise repo rate by 25 basis points… The manufacturing and construction sectors are struggling hard to move on…. I am afraid this rate hike will demoralize home buyers who already prefer fence-sitting due to unstable political scenario. Indeed, it is a bad days for Indian realty”, said Pradeep Jain, chairman of Delhi based Parsvnath Developers.

“We were actually expecting a rate cut instead from the apex bank which would have infused some positive vibes in this sentiment driven market. This move by RBI would encourage banks to increase their lending rates which are already beyond reach,” he said.

Some others such as Kamal Taneja, managing director of TDI Infracorp said today’s RBI action would make corporate and retail loans more expensive and increase EMI burden of home loan borrowers and adversely affect buyers sentiments.

Home sales have already fallen over 25% in Mumbai due to high prices and economic slowdown which has forced prospective buyers to defer their buying decisions.

Samantak Das, chief economist and director-research at Knight Frank said  that in all likelihood this (today's rate hike) might be the end of the monetary tightening process by the central bank in this fiscal year.  "However, the rate hike will throw an adverse signal to the real estate market in the short term," Das said.