Realtors fear further slowdown following rate hikes

Tuesday, 29 July 2008, 07:00 Hrs
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New Delhi: Indian realty companies have sharply criticized the central bank's move to increase repo rate and cash reserve ratio (CRR), saying this would further burden the real estate sector that is already reeling under a cash crunch and slackening demand.

The central bank has announced the hike in repo rate by 0.50 percent and the CRR by 0.25 percent.

"The hike will further dampen the spirit of the real estate sector," said Sunil Malhotra, vice president, finance, at real estate firm Omaxe.

"The real estate sector across the board is witnessing a slowdown because of paucity of funds among investors. The hike would mean flow of money to the sector would be tighter than before," he said.

"Developers will now have to look towards other sources of funds, which could be on higher rates thus impacting the cost benefit ratio of each company."

"Steps like the hike in interest rates and the subsequent raising of home loan rates that will follow have been taken by the government basically to quell growth in inflation," said Kunal Banerjee, president, marketing at Ansals API, another real estate firm.

"But home loan interest rates keep increasing, there will certainly be a detrimental effect on the mid and upper-end segment of home buyers,"

"Although, we do not predict any drastic change in the overall robust demand for quality housing at this stage, there could be a long-term effect on the speed of the overall growth, particularly in the residential real estate category," he added.

Vyomesh Shah, managing director of Akruti City, said the rate hike would "definitely have an impact on demand" in the real estate residential sector.

With respect to where rates will move for the real estate space, Shah said he expected it to move up by another 50 to 100 basis points.

Bankers Tuesday indicated they could raise lending rates, further burdening home loan customers already reeling under interest rates at their highest in nearly a decade.

Real estate demand in major Indian cities has been hit this year as urban middle class buyers, fretting over a five-year high in property prices, have stayed away from investing in property as interest rates climbed rapidly.

"Demand has slackened 10-15 percent since the beginning of the year," Sarang Wadhawan, head of HDIL, India's third largest developer, said last week.
Source: IANS
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