Ahead of the Reserve Bank of India’s announcement on policy rates on Thursday, the real estate sector has expressed concern over the impact of another rate hike on home developers and housing demand.

The Confederation of Real Estate Developers’ Association of India (CREDAI) has urged the RBI to keep the repo rate stable at the current level as both developers and customers are getting hit by the higher borrowing costs.

Street consensus has pegged a 25 basis points hike in the repo rate to 6.75 per cent, as domestic inflation, as measured by the consumer price index (CPI), is outside the central bank’s tolerance band. Food prices have remained stubbornly high as is core inflation.

Since May last year, the RBI has raised the key policy rates by 250 basis points and home affordability has reduced, especially in the low-income and mid-income segments.

Absorbing costs

CREDAI said that while builders have passed on some of the cost to consumers, they have absorbed a significant portion and this is adding to their financial burden.

“Coupled with rising raw material costs, it would further reduce the wafer-thin margins that currently exist for real estate projects, making certain projects financially unfeasible for developers,” the industry body said.

It said with another rate hike, homebuyers would be shelling out monthly installments at double-digit home loan rates “which could further deter them from purchasing a property, especially in tier-1 cities.”

In the last year, cost of construction has risen, not only due to a rise in raw material prices but also due to higher costs of borrowing. Developers were struggling with their finances, said Harsha Vardhan Patodia, President, CREDAI.

Related Topics