Increase in Borrowing Costs

When interest rates rise, the cost of loans increases, which directly affects cash flow and total project cost.

• Higher monthly EMIs increase financial pressure during development
  
• Increases the overall cost of capital, reducing profit margins
  
• May require reallocation of budget from development to debt servicing

Effect on Project Feasibility and Returns

Rising rates impact internal rate of return (IRR), net present value (NPV), and investor appeal—especially in debt-heavy projects.

• Lower IRR makes the project less attractive to equity investors
  
• NPV declines as future cash flows are discounted at a higher rate

Pressure on Buyer and Leasing Markets

High interest rates can also affect the end-user or investor base by reducing their financing capacity.

• Fewer buyers or tenants may qualify for loans or leases
  
• Longer absorption periods due to cautious market sentiment
  
• Sellers may need to offer price or lease concessions to close deals