Tuesday, July 26, 2011

Repo Rate

The Reserve Bank of India's move to raise repo rate by 50 basis points comes as a shock for the real industry as the burden on account of increased rates of interest will hit the developers as well as home buyers, says Lalit Kumar Jain, National President CREDAI.
"The  cost of funding is going be higher as banks are bound to increase their lending rates," Jain, who is also the chairman and managing director of Mumbai-Pune realty firm Kumar Urban development (KUL), said.
The industry, he said, is facing a crunch and the fund gap over the next five years alone would be as high as USD 70 billion. "The RBI announcement, therefore, could be detrimental to the growth of the industry and economy," he added.
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 material costs have already gone up by over 35% and the wages have doubled over the past three years. "Any increase in the rate of interest will, thus, be counterproductive and my fear is that it will give rise to inflation instead of curbing it," Jain pointed out.
The multiple effect of this is that buyers would continue to be wary of fulfilling their dream houses and developers would find it difficult to tap funds at reasonable rates of interest.
Jain appealed to the RBI Governor to see the reality of the day that both buyers and developers are under a tremendous stress and they need immediate relief.
With the ever increasing cost of inputs, couple with the rise in cost funding, would make affordable housing and the much touted "housing for all" a far cry, he added.
He called for a close coordination among various government departments such as finance, housing, urban development, commerce and environment to ensure that the real industry that supports over 200 other industries comes back into full swing to restore the speedy growth of the economy.
He drew the government's attention to the reforms suggested by CREDAI that are aimed at bringing down prices and increasing GDP growth.
He warned of an economic disaster and chaotic urban explosion, if corrective measures are not taken.

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