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Disappointed with Reserve Bank of India's move to increase rates, real estate developers and consultants said it would dampen customer sentiment and increase the stress in the sector.
"With a good monsoon and good crop, there was a case to reduce rates and not increase it. RBI's analysis continues to be same and it is a wrong one," said Rajeev Talwar, executive director at DLF, the country's largest developer.
In Tuesday's monetary policy, the central bank increased repo rates by 25 basis ponts to 7.75% to tame the rising inflation.
Home sales have dropped by a third in cities such as Mumbai in the first half of 2013 and office space transactions have dried out, which has curbed the cashflows of developers. Increase in interest rates would dissuade buyers from new purchases ahead of the festive season, developers and consultants said.
"This is acting as a dampener on consumer sentiment in the run-up to the festive season. The apex bank needs to ensure that it takes essential steps to support the economic growth, considering the low investor and consumer sentiment prevalent in the market.," said Brotin Banerjee, managing director and chief executive, Tata Housing.
Added Sachin Sandhir, managing director, Royal Institute of Chartered Surveyors, South Asia:" From the consumers’ perspective, this revision will also affect the sentiments, as retail loans may become costlier. Because of subdued sentiments, sales have already dropped across regions. This will impact the new prospective buyers too, as uncertain economic conditions have made them cautious. As a result, these buyers are already taking longer time to decide on a particular investment."
Others such as Samantak Das, chief economist & director research, Knight Frank, said the RBI should have adopted a wait and watch approach by deferring the repo rate hike.
"This could have helped various sectors including real estate to capitalize on the positive consumer sentiment ahead of the festive season to propel growth” Das said.
However, BSE Realty Index, which tracks realty companies, rose 2.44% today.
