Analysts say that one of the impact of the hike will be that banks will have to hike their deposit rates. Almost all banks will raise lending rates in the near future. Even if PLR is not upped, banks will lend at higher spread, comment analysts.
Realty Developers are of the opinion that there will be no significant impact on real estate companies. They say the CRR hike effect purely sentimental and there will be no impact on cash flow or balance sheet. The home loan rate hikes will not to impact demand, according to them.
Analysts say the impact on real estate would be that the cost of funds for development will go up. There might be slower demand and a fear of possible cool-off in property prices.
There was a sudden panic in the stock market following the Reserve Bank of India’s decision to raise cash reserve ratio (CRR) by 0.5% in two stages to tame the mounting inflation in the economy. The move, aimed at sucking out excess liquidity from the banking system, will be effective from February 17 and March 3, respectively with 0.25% hike in each stage. Concerns over inflation and hardening of interest rates have knocked off 560 points off the benchmark 30-share Sensex in the past three sessions.
“The sudden CRR hike is definitely going to have some negative impact on the market,” says Priyadarshi Srivastava, research head at Niche Securities. “With a likely rise in PLRs, home loan rates could become dearer, affecting the real estate sector,” he adds. He also said the move could hinder corporate borrowings and affect credit offtake of the banking sector.
There are various mixed comments on the affect of CRR hike on the Real Estate market. Anybody has any Idea whether the real estate stock market will take a dip or there will be no affect at all?
With rising real estate prices and potentially higher interest rates on the horizon, the prospective home buyer is in for a tough time. It remains to be seen what impact any rate increase may have on the real estate market. Past rate increases have not.The RBI over the last two to three quarters has maintained a hard stance on lending to real estate developers. The CRR hike will make flow to the builders tighter. However, there will be a marginal impact on the cost of debt.The unwillingness of RBI to support the real estate (developers) sector has already created a situation of credit slowdown from banks. The move will only force developers to look more towards private equity, public issue, placement, overseas float or channel in money through SPVs and FCCBs, albeit at a relatively higher cost.As private equity is not so cheap, banks have so far remained the preferred source for most developers. Cost of funding is not an issue for big developers; it’s the availability that matters.According to industry sources, some developers have discovered innovative routes – such as clubbing infrastructure projects with realty plans – to by-pass RBI guidelines.