RBI rate hike will result in Properties becoming Cheaper by 20%
The industry is facing a crunch and the fund gap over the next five years alone would be as high as $70 billion.The move of cutting property prices by 20% following RBI’s increase in repo has come in as a shock and will hit both developers and home buyers given the higher cost of funding, said most realty developers. It will lead to softening of property prices, as this 11th successive hike in rates will push equated monthly installments, or EMIs, up by 20% at aggregate level and to take care of this 20% hike, the borrower will have to increase his pre-tax income by almost 30%.
On Tuesday,RBI raised its benchmark short-term lending rates by 50 bps each. This was the 11th successive hike by the central bank since October 2009, pushing the rate cumulatively by 325 bps. Banks will put pressure on developers for improving their business liquidity.This will result in properties becoming cheaper by up to 20%, which is good news for the buyer.
According to experts, the current rate hike may achieve what the earlier 10 rate hikes could not. Most realty developers may be now forced to cut property prices and move the inventory out to infuse liquidity into their business, said market experts.
“Volumes would certainly take a hit, particularly in the budget segment where buyers are more sensitive to increase in EMIs on their home loans. Ultimately, though, property prices should trend downwards as the ability of the developers to hold on to inventory would be increasingly under strain, given the rising cost of funds,” said Anjan Ghosh, senior group vice-president, head of corporate sector ratings ICRA.
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I am a bit sceptical of this change in the RBI rates effecting the general consumer in a positive way. If the developers do require to improve their business liquidity it would just encourage them to demand more of the consumer in ‘black’. And if this goes unnoticed (and I am sure it will) it is the general public who has to pay the price for it.
how is it cheaper to the consumer?
instead of paying to builder now we are paying the money to bank.(more interest)
i don’t understand where do you guys come up with this number 20% reduction.
these articles are simply waste of time, with no sound data behind them.