RBI repo rate impact on Real Estate

In what has been rumored as one of the biggest newsmakers for the year, the RBI has disappointed the home loan borrowers by increasing the repo rate by 25 basis points. Such a move has let down the real estate sector significantly, especially as increased borrowing costs can have an adverse effect on property transaction.

Increase in repo rate will shoot up the home loan interest rates and escalate the cost of capital for the developers to construct housing and infrastructure projects simultaneously. Rise in the cost of construction will take the realty sector by a storm.

Given the deadweight of inflated EMIs, buyers may put a damper on any kind of investment even in the coming festive season. This will act as a bane for the developers, affecting the demand significantly.

According to property consultants, any hike in the benchmark interest rate from 7.25% to 7.50% will cast a black shadow on the realty sector (with increased input cost and liquidity issues), which is already plagued by sluggish sales.

The new policy will surely dampen the investor sentiments, particularly in the residential real estate sector. This will eventually lead to low sales and make it difficult for builders to sustain in a high interest regime that can contribute to increased NPAs.

It will be very crucial to see how the developers respond to this decision when the festive season arrives shortly.

Hike in repo rate will shrink the sales volume significantly and can take a heavy toll on the profit margin of the developers. With increased finance cost for developers, real estate climate of the nation is expected to drop down considerably. This, as a result, will deflate the infra-lending status in the country, and may lead to reduced number of project launches in the coming days.