Builders Predict Higher Property Prices Due to Hike in Repo Rates by RBI

Contrary to expectations, the repo rate hike by RBI may not see a downturn in real estate and property prices. On the one hand, builders have accumulated lots of property they have been holding on to in the hope of gaining higher prices. On the other hand is the higher cost of inputs such as land, steel, cement, transportation and labour. Builders predict a further rise in property even though there may be fewer takers since they may not be able to absorb all increases, including the interest rate hike.

The recent announcement by the RBI of a hike of 50 basis points in the repo rate affects builders and property buyers alike, as it will increase cost of borrowing. The Confederation of Real Estate Developers’ Association of India (CREDAI) certainly did not welcome the rate hike, terming it inappropriate and calling for the RBI to take adequate measures in the proper direction.

Even at current rates, buyers of new property may expect to pay an additional Rs. 5000 or more on their EMI. If property prices escalate, this amount will increase to what could possibly be an untenable point, cutting out those who cannot afford high EMIs for the houses they had in mind. Instead they would have to go in for smaller housing at lower cost. Will this push out prospective buyers at the bottom end and make a house a thing only to dream about?

ating mR � t P3 �Q rally want to sell at higher prices. This interest rate could dampen their tenacity and we might witness builders trying to offload property at reduced prices. Whether property prices will drastically slump is another question. There is a feeling that they might just regulate prices and release properties to keep their cash flows steady. Builders face problems of higher land prices, higher priced steel, cement and other inputs and this rate increase could be a further dampener, forcing them to cut profit margins due to decreased demands.