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Rate hike to dampen housing demand in festival season

October 30, 2013 10:32 IST

Rate hike to dampen housing demand in festival season

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Real estate companies expressed disappointment over the RBI's decision to hike the short-term lending rate, saying this could hurt economic growth and adversely impact property demand in the ongoing festival season.

The Reserve Bank's move to raise the repo rate by 0.25 per cent could make funds costlier for both developers as well as consumers, realty firms and consultants said.

"It's a disappointing announcement. It will hurt growth. At present, there is a need to boost growth and expand supply side of the economy," DLF Group Executive Director Rajeev Talwar told PTI.

He said the RBI's stance over the last three-and-a-half years has resulted in lower economic growth.

"After the bad experience of last three-and-a-half years, the RBI needs to discuss the issue with policy experts like the Prime Minister and the Finance Minister and draw out a common strategy for fiscal and monetary policies," he said.

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Image: A project under construction near Chennai.
Photographs: Babu/Reuters

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The real estate industry provides huge employment opportunities and has multiplier effect on other industries, he added.

Industry body for developers CREDAI demanded that policy makers should find a solution to manage inflation without comprising on economic growth.

"The economy slowdown is hurting one and all and the continuing price rise, coupled with job losses, could even lead to law and order problems," CREDAI Chairman Lalit Kumar Jain said. He demanded that the policy makers should take a serious look at growth engines like the realty sector.

Assotech MD Sanjeev Srivastva said: "It will increase the EMI burden on the common man that may adversely affect buyers sentiments in ongoing festival season".

Real estate companies witness the maximum sales during the October-December quarter on account of festive season.

Property consultant Knight Frank felt that the RBI should have deferred the repo rate hike, helping many sectors, including real estate to capitalize on the positive consumer sentiment ahead of the festive season.

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Photographs: Punit Paranjpe/Reuters

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"Global economies have shown firming up of activities and as a result, Indian exports have shown an upward trend. The exchange rate has shown stability and agricultural output is expected to improve even further in the coming months.

Keeping this in view, the central bank could have adopted a wait and watch approach by deferring the repo rate hike," Knight Frank India Chief Economist & Director Research Samantak Das said.

Royal Institute of Chartered Surveyors (RICS) South Asia MD Sachin Sandhir said the move is likely to increase pressure on developers, who are already struggling to raise funds for construction amidst reduced lending from banks.

"From the consumers’ perspective, this revision will also affect the sentiments, as retail loans may become costlier. Because of subdued sentiments, sales have already dropped across regions," Sandhir said. 

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Photographs: Reuters

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Reacting on the RBI policy, CBRE South Asia Chairman & MD Anshuman Magazine said: "Increase in repo rate and reduction in Marginal Standing Facility (MSF) rate will hopefully not result in an increase in home loan interest rates. Even a small rise at this point could dampen the festive sentiments of home buyers and will not auger well for the industry."

Tata Housing MD & CEO Brotin Banerjee said the RBI's decision to hike repo rate was on expected lines.

"Prospects for the real estate industry are already muted due to high interest rates and high cost of construction. This is acting as a dampener on consumer sentiment in the run-up to the festive season," he said.

RBI needs to ensure that it takes essential steps to support the economic growth, considering the low investor and consumer sentiment prevalent in the market, Banerjee said.

"Need to have policies to drive real estate growth as this is the second largest contributor to our GDP," he added. KV Developers Director Aman Agarwal said the hike is not a good sign for the real estate industry.

"It will encourage banks to increase their interest rates which will be an extra burden to the buyers who are planning to buy properties this festive season. It may force them to defer their decision which will not be a good sign for the industry," Agarwal said. 


Photographs: Reuters

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