Series of rate hikes by the Reserve Bank of India have begun to take effect. Property prices are showing signs of slowing down.

With interest rates going up and real estate at its peak level, investors will obviously go out of the market and to that extent also the market will soften.

Developers who have for long put up a brave face despite consistent rate hikes are now beginning to hurt. Some developers have even started offering 5-10 per cent discounts on under construction properties in Mumbai's eastern suburbs.

Right now from 8-9 per cent its come to 11-12 per cent average borrowing cost which is a very hefty 250 basis point increase in just 15 months.

Developers admit, they have instructed their sales teams to get more aggressive now. Most builders have taken anywhere between Rs 300 and 500 crore from banks and are paying Rs 15 crore more on every Rs 500 crore they have borrowed - thanks to interest rate hikes.

And in the phase of further interest hikes developers say they may not be able to hold on to stock for too long and will ultimately be forced to negotiate on prices.

In the current situation, there will be some developers who bought land at very high prices - they might say I'm not able to find buyers at this price and then have to work on compressed margins.

Developers say many of them have taken loans at floating rate from banks and that means an extra burden.
Moreover fresh loans are becoming very hard to come by and this has made their costs shoot up.

It now remains to be seen whether land prices that have gone up sharply too will show signs of cooling down.
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