Rate hike to hit the affordable housing sector in cities

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, 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 a senior developer. 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, CEO - business, JLL India.