An off-policy rate hike by the MPC may have taken many by surprise, including some developers. Big developers do not see a long-term hit on demand, but a short-term impact on economy offerings is not ruled out either.

An immediate hike in lending rates are not foreseen either as institutions may not want to spook demand or credit growth at the moment.

Developers, across the board, say they had factored in rate hikes for some time; while some of the listed biggies were hiking prices by 2-3 per cent every quarter with minimal impact on demand.

‘Not detrimental’

“We hope that the RBI will be cautious and calibrated in its future strategy to avoid a disproportionate hike in interest rates in the economy. We do not expect this hike to have a significant impact on demand for housing,” Ashok Tyagi, Wholetime Director and CEO, DLF told BusinessLine.

According to Ashish Puravankara, MD of the Bengaluru-based Puravankara Ltd, the rate hike is “less likely” to have an immediate and significant impact on buyer sentiment. “If the financial institutions raise rates (it will be) in a phased manner to minimise the impact on home-buyers.”

In general, it is believed a price rise of homes by over 10 per cent will have a ‘high impact’ on residential sales and below 10 per cent price rise will have a ‘moderate-to-low impact’ on sales.

Niranjan Hiranandanai, MD of Hiranandani Group and V-P of the National Real Estate Development Council (Naredco), pointed out that home-buying is a long-term purview and the rate change wont be detrimental once the geopolitical and domestic economic sentiment is stabilised.

Credit growth

According to Ravi Subramanian, MD & CEO, Shriram Housing Finance, several banks have been hiking benchmark lending rates tracking the rise in money market rates. And immediate impact of rate hike should be minimal on credit growth.

“Lending rates, however, are unlikely to surge immediately as financial institutions will look to support growth and credit demand in Q1. But borrowers need to take higher rates in FY23,” he said, adding demand for home loans remains buoyant, especially in the affordable housing segment.

Hit on economy projects

However, developers say economy homes could face some short-term headwinds on the demand front. As Ravinder Reddy, Chairman of Hyderabad-based Janapriya — which has built over 35,000 flats in the economy segment — said, new rates, if any, will impact upcoming or fresh projects. Rise in interest rates would percolate down to increased cost for input suppliers.

“For consumers, the impact (on new projects) would be two fold – increase in cost of loans and price hike by the builders who will pass on increased costs. Semi-finished/fully-ready projects are relatively insulated,” he said.

Sushil Mohta, President, Credai West Bengal, said there could be an adverse impact on sale of residential units in the short-term. Meanwhile, Pune-based Gera Developments’ MD, Rohit Gera, pointed out the “significant negative impact on affordability”.

(Inputs from Surabhi in Mumbai, KV Kurmanath in Hyderabad, G Balachandar in Chennai and Shobha Roy in Kolkata)

Related Topics
comment COMMENT NOW