RBI hike: Home buyers to pay 'penalty'

New Delhi: Housing prices could go up, as the borrowing cost for developers is set to increase following the hike in short-term lending rates by the RBI, industry body CREDAI said today.

The RBI's decision to hike key rates - lending (repo) and borrowing (reverse repo) rates by 50 basis points to 7.25 per cent and 6.25 per cent respectively - will raise the cost of home, auto and other loans.

It was reacting to the news that the reserve Bank of India (RBI) in its credit policy meet had hiked key rates by 50 bps to

India's largest realty firm DLF said that banks should not increase the interest rates and felt that prices, whether of food or housing, can only be controlled by improving supplies.

Reacting to the RBI's decision to raise the repo and reverse repo rates, Confederation of Real Estate Developers Association of India (CREDAI) Chairman Pradeep Jain said: "This is going to increase the cost of funds for both developers and home buyers."

"Property prices would go up since the input cost will increase because of the increase in borrowing cost to developers," Jain, who is also Chairman of Parsvnath Developers, added.

JLL India Country Head and Chairman Anuj Puri said the RBI's decision was expected, considering high inflation.

Asked about impact on real estate, Puri said: "It will start to have an impact on housing demand because of the increase in interest costs."

He pointed out that housing demand in bigger cities is already sluggish and the hike in short-term rates would further affect the demand. He said, however, the demand in smaller cities might not be affected as the prices are reasonable there.

Jain, however, said there would be no adverse impact on demand, as people need homes.

DLF Group Executive Director Rajeev Talwar said: "Home loan is the safest category of loan. Banks should not increase the interest rates on home loans. They have enough cover to absorb the hike in repo and reverse repo rates."

Talwar hoped the latest hike in repo and reverse repo rates would be the last, as he felt there was no futher scope to raise the short-term lending rates.

On housing demand, he said it would not be affected, as the country's economic growth is robust.

However, real estate consultant Jones Lang LaSalle (JLL) said that developers are unlikely to increase housing prices as demand in bigger cities would be hit due to the RBI's monetary policy.

On the impact on housing prices, Puri of JLL India said, "Developers would absorb the possible increase in their interest cost by lowering their profit margins."

Source: Financial Express