The Indian real estate industry is caught in a pincer attack after the Reserve Bank hoisted the policy rate by 0.5 percentage point more this week. Consumers are expected to buy less because home loans are expensive, while builders will charge more because corporate borrowing is costlier.
The repo rate, the rate at which banks borrow from RBI, has been increased by 3.25 percentage points since March 2010. Tuesday’s hike was the eleventh in 16 months. Retail home loans now come in the interest range of 10.5-11.5 per cent and this is expected to go up to 11-12 per cent as banks pass on the RBI pinch to customers.
Yes Bank and ING Vysya Bank have already kicked off the process.
Banks are charging developers 14 to 16 per cent as interest, and this can go up by up to 1 percentage point.
Mr. M Narendra, CMD, Indian Overseas Bank Said, "The hike in the cost of funds will be passed on to the customers.Going forward, developers may see problems such as an increase in project costs and delays in project completion."
"Developers are already stressed about getting loans for their projects and many of them are borrowing from non-banking financial companies and private lenders'
According to Mr. Lalit Kumar Jain, National president of CREDAI, RBI raised the repo rate by 0.50% comes as a shock for the real estate industry as the burden on account of increased rates of interest will hit the developers as well as home buyers,
The cost of funding is going be higher as banks are bound to increase their lending rates once again.
The industry is facing a crunch and the fund gap over the next five years alone would be as high as 70 billion US dollars.
Estimates are that the housing that is required in the current Five-Year Plan is 24.6 million and it is 37 million in the next Five-Year Plan and the country would need USD 3.2 trillion for this. Funding gap in housing will be around USD 70 billion in the next five years among the existing developers alone.
The construction material costs have already gone by 35-40%t and the wages have doubled over the past three years. It had affeced the real industry,
Mr. Lalit Kumar Jain warned of an economic disaster and chaotic urban explosion, if corrective measures are not taken
Unless the real estate prices come down the customers simply cant affordto buy their dream home. Many people being forced to postpone their decision to invest in a home.
The repo rate, the rate at which banks borrow from RBI, has been increased by 3.25 percentage points since March 2010. Tuesday’s hike was the eleventh in 16 months. Retail home loans now come in the interest range of 10.5-11.5 per cent and this is expected to go up to 11-12 per cent as banks pass on the RBI pinch to customers.
Yes Bank and ING Vysya Bank have already kicked off the process.
Banks are charging developers 14 to 16 per cent as interest, and this can go up by up to 1 percentage point.
Mr. M Narendra, CMD, Indian Overseas Bank Said, "The hike in the cost of funds will be passed on to the customers.Going forward, developers may see problems such as an increase in project costs and delays in project completion."
"Developers are already stressed about getting loans for their projects and many of them are borrowing from non-banking financial companies and private lenders'
According to Mr. Lalit Kumar Jain, National president of CREDAI, RBI raised the repo rate by 0.50% comes as a shock for the real estate industry as the burden on account of increased rates of interest will hit the developers as well as home buyers,
The cost of funding is going be higher as banks are bound to increase their lending rates once again.
The industry is facing a crunch and the fund gap over the next five years alone would be as high as 70 billion US dollars.
Estimates are that the housing that is required in the current Five-Year Plan is 24.6 million and it is 37 million in the next Five-Year Plan and the country would need USD 3.2 trillion for this. Funding gap in housing will be around USD 70 billion in the next five years among the existing developers alone.
The construction material costs have already gone by 35-40%t and the wages have doubled over the past three years. It had affeced the real industry,
Mr. Lalit Kumar Jain warned of an economic disaster and chaotic urban explosion, if corrective measures are not taken
Unless the real estate prices come down the customers simply cant affordto buy their dream home. Many people being forced to postpone their decision to invest in a home.
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