Sentiments,already low,to be hit further: realty sector

Higher than expected hike in key policy rates by the RBI has evoked strong reactions from real estate firms.

Higher than expected hike in key policy rates by the RBI on Tuesday has evoked strong reactions from real estate firms. The development has come at a time when the sector is plagued by rising input and borrowing costs,lack of funding for projects and more recently the Supreme Court order quashing acquisition of land in parts of Noida. The general sentiment,already low,would be hit further with this rate hike,feels the industry.

Markets have reacted negatively to the hike. Its a double whammy for the real estate sector which is already reeling under the weight of high input costs. The increase in rates will further add to the woes of the sector, said Lalit Jain,national president,Credai,an association of real estate developers. The sector is reeling from high costs on the supply side and deceleration on the demand side as debt servicing is becoming increasingly difficult. Financing by banks,financial institutions and even private equity investors have slowed down considerably.

Making housing finance costlier shall shatter dreams of many first-time home buyers particularly in the low- and middle-income categories. In fact there is a case for lower interest rate because housing is a necessity for the masses and there is a shortage of over 26 million units in the country, said Brig. (retd.) RR Singh,director general,National Real Estate Development Council,an autonomous self-regulatory body for the sector under the aegis of the ministry of housing.

Residential buyers in cities with higher purchase capacity are expected to be impacted the most. Blue-collar home loan borrowers who have limited budgets will be hit severely because of the increase, said Sanjay Dutt,CEO-business,Jones Lang LaSalle,India. Financiers have already hinted at increase in home loan rates. Home loan rates will move up again. The cumulative increase over the past year will test the budgets of those repaying their loans. It will also constrain the eligible loan amount for new home loan applicants, said Anil Kothuri,executive VP,Edelweiss Housing Finance.

Industry insiders,however,believe that solution to the problem lies elsewhere. Sanjay Kabra,CFO,Sunil Mantri group said,(Hiking rates) is like giving paracetamol for high fever. Can this treatment alone work? The government also needs to address causes of inflation through efficacy of government spending and embedded costs of corruption and mis-governance.