While developers lamented the RBI hike in key policy rates as being detrimental to the real estate sector, already battling rising costs and sluggish sales, others said the central bank's anti-inflation stance was along expected lines.
Mr Pradeep Jain , Chairman, Confederation of Real Estate Developers' Association of India (CREDAI), said: “RBI's credit policy is unlikely to change the course of the market. Over the last one year the RBI has embarked on a highly ambitious inflation management objective by raising key rates consistently but the results cannot be seen yet.
“The Government also needs to take other strong measures such as ensuring proper public distribution system of key food articles, and crack down on hoarders as a measure to control inflation.”
Mr Anil Kothuri , Head-Retail Finance, Edelweiss Group, said the latest increase in the wake of elevated inflation and a moderating growth momentum was along expected lines.
This hike will be mirrored by an increase in lending rates for new and existing home loan borrowers. Home buyers will be forced to re-evaluate their plans since they will get 25 per cent lower loan amounts as compared to a year ago owing to rising interest rates.
COUNTERPRODUCTIVE
Mr Lalitkumar Jain , National President, CREDAI, felt that increase in interest rate is counterproductive and only gives rise to inflation instead of curbing it. Lack of coordination among various departments such as finance, housing, urban development, commerce and environment was a major issue restricting growth and increasing costs.
If proper reforms were not brought in housing and SEZ policy commitments are not kept, it could lead to a major economic disaster and chaotic urbanisation, he added.
TO HIT SALES
Mr Anuj Puri , Chairman and Country Head, Jones Lang LaSalle India, said “purchasing activity had already dropped visibly during the last tranche of interest rate hikes, and we will see a further drop in buyer interest now.”
As for developers coming down on their prices to counter the negative effects of this hike, a lot depends on the financial ability of individual developers to hold on to their current pricing and risk losing sales till the situation improves, he felt.
NO RESPITE
Mr Sanjay Kabra , Chief Financial Officer, Sunil Mantri Group, said inflation has already resulted in soaring input costs of construction. Customers are also hurt with higher EMIs on their loans and sales are sluggish.
The industry is reeling from the double whammy of higher input costs and sluggish sales. The real estate industry carries huge debt service obligations and sees very challenging times ahead. While inflation is not quite tamed the economic growth is definitely coming under pressure with the higher rates. We only hope that this is the last hike by the RBI for 2011. Any further will be debilitating for the sector.
CREDIT GROWTH INTACT
Mr Sandeep Nanda , Chief Investment Officer, Bharti AXA Life Insurance, said credit growth at 20.6 per cent year-on-year in June 2011 suggests economic activity is holding course. Headline inflation is still above comfort level with high non-food manufactured products showing generalised price pressures.
“RBI clearly maintains an anti-inflationary stance though it recognises the risk to domestic growth due to developing global economic scenario. We expect the RBI to hike repo rate by another 25 bp in July 2011 and then adopt a wait-and-watch approach.”
NO LONG-TERM EFFECT
Mr Jeh Wadia , Managing Director, Go Air, did not forsee any problem in the aviation sector due to the policy rate hikes. “My view for the mid-term to long-term is that there will be no problems in the aviation sector because of the volatility in interest rates. Banks look at profitability, performance, and growth trajectory of companies before funding and that is going to continue.”
Mr Vishnu Mathur , Director-General, Society of Indian Automobile Manufacturers, said the rate hike will have a negative impact on the industry, because market sentiment is already negative. It will lead to an increase in costs for both companies and the vehicles.
“However, we do not expect a long-term impact, as the potential of the market is still very high. The growth story should remain intact,” he added.