Increased Cost of Borrowing to Impact Cost of Construction, to Put Pressure on end-users: Developers

Increased Cost of Borrowing to Impact Cost of Construction, to Put Pressure on end-users Developers

A majority of realty consultants and developers have welcomed the RBI move to tame inflation. However, they fear that the rate hike will ultimately make home loans costlier, impact buyer sentiment and hit residential sales.

As widely expected, the RBI increased the repo rate by 50 bps to 4.9% on Wednesday, which was imminent in view of the current inflationary trajectory and geopolitical concerns.

A majority of realty consultants and developers welcomed the RBI move to tame inflation. However, they feared that the rate hike will ultimately make home loans costlier, impact buyer sentiment and hit residential sales.

Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com, said, “The RBI move to increase the repo rate by 50 basis points to 4.90% was widely expected. We can say that we are in the midst of a rate up-cycle as inflation remains outside the comfort level of the apex bank. However, the twin rate hikes by the apex bank would ultimately result in home loan interest rates going up, thereby impacting buyer sentiment that has remained consistently strong during the record low interest rate regime over the past year. The increased cost of borrowing would also make construction of housing projects costlier for developers, ultimately putting price pressure on the end-user.”

However, the RBI announcement to increase the limit for individual housing loans by state and district cooperative banks by 100% is a positive move that will cushion some of the impact of the rate hike. Credit flow to the housing sector is also likely to improve with rural cooperative banks starting to finance residential projects.

Dr Niranjan Hiranandani, Vice Chairperson-NAREDCO and MD-Hiranandani Group, observed, “A two-thong approach by the RBI governor and the Government of India by means of monetary and fiscal intervention is an absolutely necessitated step to administer economic growth as well as arrest inflationary pressure. A corroborated approach is hailed by India Inc to sustain economic resiliency and boost sentiments. It is, however, evident that home loan interest rate hike will impair the home buying rally as pay out in terms of EMI is scheduled to rise. But according to me, this crater in demand sentiment is a makeshift move, as home loans are based on floating rate for a long tenure. The EMI constraint will be eased as rates are expected to normalize once the global situation is stabilized.”

Akhil Saraf, Founder and CEO, Reloy, a real estate digital amenities, and referral sales solutions provider, however, felt that housing sales will not be impacted to a large extent.

“Given the high inflation, the RBI had no option other than to increase policy rates to curtail the excess liquidity in the market and put a check on inflation. An increase in the repo rate will push the lending rates up and eventually hit home-buyers. However, given the possibility that the interest rate goes up by 50-100 basis points, it will still remain under the comfort zone of below 8% per annum. With other factors and market conditions in favour of home buyers, sales momentum is expected to continue without any major hiccups.”

Ridhima Kansal, Director, Rosemoore, said, “In the backdrop of rising inflation, the RBI has implemented a rate hike by 50 basis points. This is the second consecutive rate hike after the apex bank increased the repo rate by 40 bps last month. This is a move that has come as a no-brainer since the RBI has attributed the current scenario to tensions between Russia & Ukraine along with currency depreciation & high supply shock.”

The escalation in rates has definitely prompted retail borrowers to adopt a bearish outlook when it comes to borrowing as the cost of taking out loans is now noticeably higher. “However, looking at the consistent pace of improved urban demand, there is still optimism as far as uptake in commodities such as home fragrances is concerned, which are predominantly emerging as a popular product among buyers,” she said.

Some developers also urged the government to take concentrated efforts to reduce the spike in prices of raw materials such as cement, bricks, steel, etc.

Suren Goyal, Partner, RPS Group, said, “We welcome the step of the apex body to increase the overall repo rates by another 50 basis points. This will help in clamping down inflation and smoothen economic growth. A rise in inflation can soften the stance on an otherwise robust real estate industry. Already raw material prices are increasing and an unbridled rate of inflation will further drive the input costs northwards, therefore resulting in cost overruns for the developer fraternity. In such a case, they will have no option but to pass on the price rise to homebuyers. Meanwhile, the government should also take concentrated efforts to reduce the spike in prices of raw materials such as cement, bricks, steel, etc. This will also give some relief to the sector.”

“The cost of key construction materials like steel and cement has gone up significantly in the last six months or so, which has pushed up construction costs substantially. However, after the policy rate hike announced by the apex bank last month, there has been some softening of prices of these commodities, including steel. We hope with today’s policy rate hike, prices would soften further, which would benefit the real estate sector as well as end-users immensely,” said Pankaj Pal, Group Executive Director, AIPL.

Source : Financial Express

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