Rate Hike To Delay Realty Projects

Real Estate Developers Face Further Slump Due to RBI’s Interest Rate Hike

The recent interest rate hike by the Reserve Bank of India (RBI) has dealt a significant blow to the already struggling real estate sector. Developers are now facing a dual challenge of slow demand and rising costs of capital and construction, leading to deferred new project launches and potential delays in ongoing projects.

Developer Reactions

  • Indiabulls: Group spokesperson Gagan Banga expressed concerns over the interest rate hike, stating, “Interest rate hike has dampened the sentiment in the real estate market, which will result in further slowdown. We see 5-15% price correction in the real estate sector in the next few months depending on the project and its location”.
  • Cushman & Wakefield South Asia: MD Sanjay Verma highlighted the credit crunch, “There is no alternative to credit. Land transactions have dried up due to developers’ inability to bring funds. The fund-raising plans of developers have also changed and some have limited their expansion plans”.
  • Unitech: General Manager (Corporate Planning & Strategy) R Nagraju downplayed the impact of high borrowing costs on margins, emphasizing the need to stimulate demand by adapting products to current market needs, such as making houses more affordable.

Strategic Shifts

  • Unitech: Plans to launch affordable housing projects, including houses priced at Rs 40 lakh in Gurgaon and lower price points in smaller cities.
  • Ansal Properties and Infrastructure (API): Will focus on launching plotted development projects, which still have a good demand, and prioritize project execution over new housing project launches.

Market Pressure

  • The real estate market has been under pressure for the past six months, with sales declining by up to 70% in several markets.
  • Prices have declined by up to 20% in overheated pockets like Gurgaon, Greater Noida, Ghaziabad, and some Mumbai suburbs.
  • Smaller developers fear project delays due to unavailability of funds, with bank credit already dried up and rising interest rates increasing borrowing costs from NBFCs or private moneylenders.