Real estate companies see their cost of borrowing going up by one percentage point as the central bank has increased the repo rate by 0.5 per cent and cash reserve ratio by 0.25 per cent.

The rate hike will push up the corporate lending rates. This, in turn, is expected to further strain the balance sheets of realty companies, already reeling under a fund crunch in the wake of slower property sales, higher lending rates, rise in input costs and the central bank's measures to check traditional sources of funding.

"The borrowing rates will be one per cent higher. The rate hikes will eventually hurt the balance sheets of real estate companies. The cost of funds for our upcoming power projects will go up significantly,'' said Ajith Mittal, president, corporate affairs, Indiabulls [Get Quote] Group.

Indiabulls' property arm Indiabulls Real Estate [Get Quote] is into residential, commercial and retail realty development. It has ventured into power and is setting up power projects in Jharkhand and Maharashtra.

Hitesh Agrawal, head of research, Angel Broking, said, "We expect the rate hike impact to be visible not only on the rate sensitive sectors such as banking, realty and auto, but also on corporate profitability as a whole as most sectors and companies have embarked on huge capacity expansion plans.

Property transactions in most Indian cities such as Mumbai and Delhi have fallen 10 to 15 per cent due to higher lending rates in the last six months, limiting the cash flows and execution skills of developers.

"Developers need to factor in the hike in lending rates, which will lead to a dip in demand. However, a correction in real estate prices will make up for the dip in demand caused by increase in rates,'' said Mittal.

Most real estate companies have been cautious in buying land and launching new projects, given the tight monetary scenario. Akruti City, another Mumbai-based developer, is focussing on housing projects.