The increase in key short-term lending and borrowing rates by 50 basis points announced on Tuesday by the Reserve Bank of India (RBI) is set to impact the affordable housing sector in key cities of Gujarat, say real estate developers. While already the sector was witnessing a slowdown since couple of months, developers believe the rate hike will further impact borrowing capacity of residential unit buyers.
"In last one year, the equated monthly installments (EMI) has risen by one and half times for an average buyer in Ahmedabad. Post repo and reserve repo rate hike by RBI, banks are yet to hike their interest rates. However, the sentiment is getting negative day-by-day with demand likely to be affected in the coming days," says Vijay Shah, of M/s Vijay Shah, an Ahmedabad-based real estate development firm.
According to Jones Lang LaSalle India (JLL), a real estate consulting firm, residential buyers will be affected the most.
"All real estate stakeholders are now at a crossroad. Investors particularly will ask themselves serious questions about the right time, place and price to enter real estate. Their primary concerns will be about the possibility of decreased demand for and therefore decreased profitability of the projects they invest in. They will have to face the increased risk of having to exit at lower values. Residential buyers in cities with higher purchase rates and ticket sizes will be impacted the most. Blue-collar home loan borrowers who have extremely limited budgets and have already been struggling with the high cost of real estate will be hit severely because of this increase of interest rate," says Sanjay Dutt, chief executive officer - business, JLL India.
Mostly, borrowing capacity of middle income group (MIG) and lower income group (LIG) are likely to be impacted, say players. The real estate industry in Ahmedabad has been witnessing a slowdown in brokerage business by 30 per cent since January. Triggered by the slowdown, developers had been offering freebies alongwith schemes, especially in the affordable housing sector. For developers, the rate hike will be an added blow, over and above rise in raw material prices. "Since one year prices in various materials including labour have been rising. Once banks also begin hiking the interest rates, the realty market in Ahmedabad will be under further pressure, with an additional burden on the affordable housing sector," says Jaxay Shah, director, Savvy Infrastructure.
