RBI rate hike to hurt housing demand: Realtors

Real estate developers have said the Reserve Bank of India's (RBI) decision to hike the key policy rate would lead to increase in finance cost and also affect housing demand during the festive season.

The central bank earlier on Friday raised the short-term policy rate by 0.25 per cent to keep "worrisome" inflation under check, a move that may increase EMIs for home and auto loans in the medium term.

"There was no need to increase the repo rate at this juncture. It will hurt the growth sentiment further," DLF Chief Financial Officer (CFO) Ashok Tyagi said.

Asked about impact on real estate, Tyagi said the overall sentiment would remain cautious, but he believed that good products from credible developers on good locations would always have a demand.

Commenting on the policy, Parsvnath Developers' Pradeep Jain said: "It is highly disappointing to see such a signal from RBI. Though increasing Repo by 25 bps (0.25 per cent) may curb inflation marginally or may hold Rupee for a while, it is going to impact market sentiments significantly".

The RBI had a golden chance to bring positivity in an otherwise sluggish economy, but this increase in rates would affect growth prospects, he added.

"It is not a good signal for the industry which is about to enter the festive season. Banks have already started raising their rates," Jain said.

Housing demand generally goes up during the festival season and developers major part of sales take place during this period.

Global property consultant Jones Lang LaSalle India Chairman and Country Head Anuj Puri said the hike in repo rate would lead to increase in developers' finance cost and affect their profit margin.

"In the current monetary policy, RBI has increased the repo rate by 25 bps, which will increase the borrowing cost. However, with reduction of MSF by 75 bps (0.75 per cent) and reduction of minimum daily maintenance of CRR from 99 per cent to 95 per cent, it has relaxed tightening norms," Puri said.

Increase in finance cost along with rising cost of construction and the already challenging economic scenario is expected to affect profit margins of developers, he added.

"While the real estate industry has reason to be somewhat disappointed on the increase in borrowing cost, RBI has made provisions for increased liquidity in the system," he said.

Terming RBI's decision as "unexpected", Griha Pravesh Buildteck CMD Abhay Kumar said the move would disappoint the banking industry and consumers who are struggling under the burden of high Equated Monthly Installments (EMIs).

"It would also dampen sentiments ahead of the peak festival season, when developers expect the demand for houses to go up. This is going to hurt both buyers as well as the developers," Kumar said.