May 04, 2011:The hike in interest rates may have a ripple effect on the real estate sector with construction cost going up. The RBI announcement will negatively impact real estate developers already reeling under pressure from lack of capital from lending institutions. It comes as bad news even for those looking to buy a house as loans would become costlier. Several banks like ICICI Bank, SBI and IDBI indicated that they would increase lending rates in near future.

Pradeep Jain, chairman of Confederation of Real Estate Developers? Association of India (Credai) said, ?The 50 bps hike is harsh. This will intensify the cash crunch scenario which industry is facing right now. Taking fund out of the market cannot be the only solution to tame inflation. The current pressure on prices is global in character and reflects supply side bottleneck. The solution is not monetary tightening. To me it is surprising and anti-housing policy.? Ashok Tyagi, group CFO, DLF said, ?hiking interest rate as the only tool to fight inflation has not been successful in the past. This could start impacting supply side investment.?