While Realty Players Express Fear, Experts Express Hope
The Indian realty sector has already slowed down in the last year due to several factors such as slow economy, falling rupee and high property prices. Now, India Inc is fearing that RBIs latest move for hiking repo rates may further slow down the real estate sector.
The RBI policy
The Reserve Bank of India raised its policy interest rates for the second time on Tuesday by 25 base points to 7.75% and reverse repo rates by 6.75%. This essentially means an increase in interest rates for companies as well as customers. Due to the policy, domestic loans will become more expensive for companies. This will also indirectly increase equated monthly installments (EMIs) for customers on home loans and auto loans if banks decide to pass the rate hike.
This will eventually result in lesser disposable income. It is expected to impact all sectors leading to further slow down in economic growth.
Impact on real estate
The Indian realty sector will feel a significant impact if the banks decide to increase lending rates. The sector is already dealing with slow sales due to dampened customer sentiments. The increased interest rates are expected to further dampen customer sentiments. Realty players were earlier hopeful about improved property sales during the festival season. However, they are now worried about sales going further down due to possible hike in home loan rates. At the moment, banks are lending loans at 13-14% interest rates to developers.
Industry experts hopeful about revival
While realty players are worried about further slump in sales in the short term, experts are hopeful about revival of the real estate industry in the long term. According to Cushman and Wakefield, a real estate services firm, global investors who had a bad experience in 2008 with the Indian real estate sector may not return immediately. However, new long-term investors are keeping a close watch. Sovereign wealth funds and pension funds will be some investors apart from local investors who will be investing on a long-term basis. Certain important names such as Hines or Blackstone are also eventually expected to invest in the future.
The firm states that the Indian market is currently in a maturing stage just like other mature markets were few years ago, and it will take about 5-20 years to reach the stage of developed markets such as US and Europe. This will depend on improved transparency, ability to provide more liquidity and better quality product.
