Through six successive hikes since May, the central bank has raised policy rates by a cumulative 250 basis points, taking the repo rate to 6.5%.
One basis point is 0.01%.
The central bank last raised the rates in February, making loans expensive.
This has resulted in added financial burden and burgeoning costs for the sector that has linkages with more than 260 ancillary industries. Housing loans interest rates also now hover around 9% from a record low of 6.6% a year ago. Affordable housing, which is more sensitive to interest rates, has already started slowing down.
Developers have expressed concerns over a potential hike in the repo rate by the Reserve Bank of India (RBI) in its upcoming monetary policy committee review next week.
“In the past one year, the cost of construction has risen rapidly due to the gradual increase in repo rates by RBI, which has adversely impacted many developers as they struggle to cope up financially,” said Harsh Vardhan Patodia, President, CREDAI. “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.”
Acknowledging the support, RBI has lent to the industry in the past, especially during the peak Covid stress, CREDAI has highlighted the need for a lower repo rate to ensure sustained growth in the broader economy.
CREDAI has said another increase in the repo rate would lead to even higher borrowing costs for developers, ultimately leading to even higher project costs even as property prices climbed 5-6% in the past one year.
CREDAI has emphasised the direct correlation between the repo rate and India’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 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, denting affordability.
