The Confederation of Real Estate Developers' Association of India (CREDAI) has termed the 50 bps hike in repo and reverse repo rates as ‘harsh.'

Mr Pradeep Jain, Chairman, said it would intensify the cash crunch scenario which the industry was facing right now. Along with this the RBI's increase of the saving bank deposit interest rate to 4 per cent would also add pressure on the cost of funds for banks.

Mr Jain said taking fund out of the market cannot be the only solution to tame inflation. The current pressure on prices is global in character and reflects supply side bottleneck. The solution is not monetary tightening. This step by RBI will further affect the demand-supply matrix of industry which has been so far going good.

“It is surprising and an anti-housing policy. I appeal to RBI to act strong on restricting rising prices which threaten to derail the country's economic growth but not at the cost of flow of fund,” he said.

Mr Ashutosh Limaye, Local Director – Strategic Consulting, Jones Lang LaSalle India, said the rate hike obviously means that the cost of construction has gone up for developers, and this move by the RBI certainly does not come at the best of times for them.

Banks have already taken a cautious approach to real estate lending and reduced their exposure to the sector, and most developers are now prevailed upon to raise a larger component of their construction costs from the private sector. The fact that such funds come at a higher cost of borrowing has already increased their construction costs significantly.

Mr Lalit Kumar Jain, National President, CREDAI, said it was a big blow for both the developer and the home buyer.

The RBI move comes at a time when everyone is concerned about the high cost of inputs that is leading to high cost of property, he said.

(This article was published on May 3, 2011)
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