The Confederation of Real Estate Developers' Association of India (CREDAI) has expressed concerns over a potential hike in the repo rate by the Reserve Bank of India (RBI) in its upcoming monetary policy committee review.
The realty lobby has urged the RBI to not increase the repo rate any further, citing the financial challenges faced by developers and the potential impact on housing sales due to the consequential rise in prices and home loan rates.
The Reserve Bank of India's monetary policy committee hiked the key repo rate to 6.50% in February to tame rising inflation. At the MPC meeting, RBI governor Shaktikanta Das had said that pausing repo rate hike would be "premature".
RBI's monetary policy committee is scheduled to meet from April 3-6, its first meeting in the next financial year.
In the last one year, the repo rate has increased from 4% to 6.5%, being solely absorbed by developers leading to added financial burden and burgeoning costs, says CREDAI.
The real estate body warned that another hike in the repo rate would lead to even higher borrowing costs for developers and make it a more challenging lending environment.
This, according to CREDAI, would ultimately lead to even higher project costs and housing prices, on the back of prices already increasing by 5-6% in the last one year.
Coupled with rising raw material costs, it would further reduce the wafer-thin margins that currently exist for real estate projects, making certain projects financially unfeasible for developers, says CREDAI.
The real estate lobby also emphasised the direct correlation between repo rate and the country's GDP growth, pointing to the period from March 2021 to March 2022, where the repo rate was hovering around 4-4.4%, leading to one of the strongest eras in the Indian economy, with a GDP growth of 8.95% in that period.
Homebuyers, too, will face higher, almost double-digit home loan rates with a potential repo rate hike, which could further deter them from purchasing a property, especially in tier 1 cities, CREDAI cautions.
"This could lead to a slowdown in the real estate market and result in homebuyers postponing their purchase plans, reversing a trend in the post Covid era wherein homebuying was on the rise," it says.
"In the last 1 year, the cost of construction has risen rapidly due to the gradual increase in repo rates by the RBI, which has adversely impacted many developers as they struggle to cope up financially. Another repo rate hike would not only make certain projects financially unfeasible, but it would also deter homebuyers as home loan rates will be at an all time high," says Harsh Vardhan Patodia, president CREDAI.
"Acknowledging the support RBI has lent to the industry in the past, especially during peak Covid, CREDAI has backed the need for a lower repo rate by stressing on the strong GDP growth numbers that India could achieve during 2021- 2022, ultimately enabling a win-win situation for all stakeholders involved," Patodia adds.