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RBI rate hike: Realtors warn of surge in housing prices

New Delhi, The Financial Express

September 16, 2011

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Housing prices are likely to go up on account of an expected rise in the developers' borrowing costs following the Reserve Bank of India's (RBI) decision to hike key interest rates by 25 basis points, but realtors do not foresee demand being dampened during the ensuing festive season.

"Interest rates on home loans as well as on developers' borrowings are bound to go up. Housing prices, which have gone up by 15-20 per cent in last one year, will further increase as we are not left with no choice but to pass on the same to buyers," Confederation of Real Estate Developers' Association of India (CREDAI) Chairman Pradeep Jain said.

Asked about demand, he said there are no concerns, as buyers understand there is no benefit to putting their decision on hold due to rising property prices.

"The housing prices will rise by 30-50 per cent, depending upon location, once the proposed land acquisition Act is passed by Parliament. So end-user customers know this and therefore, we do not see any adverse impact on housing prices," he said.

Jain said end-user demand during the festive season would remain buoyant, but felt that investor demand could be lower than the last year due to the negative sentiment.

Country's largest realty firm DLF's Executive Director Rajeev Talwar said, "Housing prices may go up as cost of financing the project will rise".

On demand, he said, the prospective buyers would be discouraged to buy property with rising EMI on home loans.

CREDAI (NCR) President Pankaj Bajaj said the consecutive interest rate hikes have led to a 40 per cent rise in housing cost even for existing home buyers who have taken home loans.

He said that consecutive interest rate hikes could hit housing demand. "Whatever robust demand for housing in India might be, a point has to come when interest rate hikes will start affecting it. We are afraid that point has come," Bajaj said.

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