The surprise rate hike announced by the Reserve Bank of India (RBI) on Wednesday has made the real estate industry nervous. Developers and industry watchers are concerned that this could lead to a rise in home loan interest rates, which will impact residential demand that has remained buoyant in the last two years.
Historically low interest rates witnessed in the last two years have been a major contributor to a sharp increase in residential sales since the beginning of the Covid-19 pandemic in 2020. Developers are hoping that the banks will not pass on the hike to home loan rates in a hurry. However, they are worried that if the hike happens, then coupled with the inflationary trend, the price of houses will increase, which would take away the affordability for the homebuyers.
Niranjan Hiranandani, managing director, Hiranandani Group, said, “I hope the hike in repo rates will not impact home loan interest rates; and that the regulator will ensure that inflationary pressure on the individual does not get exacerbated by hiked rates of home loans. Inflation rates in India have been beyond the RBI’s upper band of tolerance, which is 6%, so the rationale of the move makes sense — the hope being that home loans would not get impacted.”
Ashish R Puravankara, MD, Puravankara, said, “We are hopeful that if there is a rise, the financial institutions will increase the rates in a phased manner to help minimise the impact on homebuyers.” However, not everyone holds that optimism. Anuj Puri, chairman, ANAROCK Group, said that the hike was expected, as inflation had moved into the threatening zone and the hike signals an imminent end to the all-time low interest regime, which has been one of the major drivers behind home sales across the country since the pandemic began. “Rising interest rates and inflationary trends in basic raw materials in construction including cement, steel, labour cost, etc will add to the burden of the residential sector. This rise in interest rates will ultimately impact overall acquisition cost for homebuyers — and may dampen residential sales to some extent,” he said.
Rohit Gera, MD, Gera Developments, said, “An increase in repo rate has been expected on the back of very high inflation. Rising interest rates, along with rising prices of homes on account of high inflation, will have a significant negative impact on the real estate sector, as both impact affordability significantly.”
However, developers also believe that the rate hikes may propel a lot of fence sitters to now make their purchase decisions. Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure, said, “We anticipate some impact but it will also force homebuyers to think of buying homes, as prices could increase at any time, instilling a sense of urgency in the minds of homebuyers that was already fuelled by the new normal,” he said.
Ramesh Nair, India CEO and MD (market development) Asia, Colliers, also said that this makes for a good time for homebuyers who were on the fence about buying their home. “With home prices expected to rise in certain segments, it is an opportune time for homebuyers to take advantage of the current low home loan rates and largely stable prices, before banks reset interest rates.”
According to Dutt, the next two months will be critical for the real estate sector, as developers will need to assess demand dynamics and pair them with lucrative offers that complement the overall homebuying experience, giving homebuyers last-mile benefits.
Kamal Khetan, chairman and MD, Sunteck Realty, said, “We believe that the marginal increment in the home loans rates would not impact buyers’ property purchase decisions and may even accelerate to take advantage the existing favourable situation.”