The Reserve Bank of India raised the repo rate by 35 basis points in its MPS meet on Wednesday, which is the fifth consecutive rate hike this year. Industry experts feel that with the repo rate now at 6.25%, there must be some repercussions on housing uptake.
“This hike will undoubtedly push up home loan interest rates, which had already crept up after four consecutive rate hikes this year. However, as long as interest rates remain in single digits (mainly within 9.5%), the impact on housing will at best be moderate. If they breach this point, we will see some real pressure on residential sales volumes in the months to come – especially in the affordable and lower mid-range housing segments,” said Anuj Puri, Chairman, ANAROCK Group.
It may be noted that the Indian housing market remains largely end-user driven. Unlike investors, end-users do not look for the lowest entry point but for the inherent value and benefits of homeownership. As long as end-users continue to significantly outnumber investors, interest rate-driven impacts on housing sales will not be very pronounced.
“The impact of the last four consecutive rate hikes early this year was minimal. This was clearly validated by the outstanding performance of the housing sector in the last quarter (Q3 2022). As per ANAROCK Research, as many as 88,230 units were sold across the top 7 cities in Q3 2022, after the three recent rates hikes. Consumer demand remained strong with the sales rising by 4% against the preceding quarter and 41% annually,” added Puri.
A majority of industry experts are of similar opinion. According to them, as expected, the RBI has hiked the repo rate with inflation continuing to be a matter of concern. However, the increase in the key interest rate is lower than the last three hikes, which shows that the RBI is moderating its views on inflation gradually. Nevertheless, the cost of borrowing for both individuals and corporates will go up, which will impact economic activity.
“On the real estate side, interest rates on home loans have increased to around 8.5 per cent from 6.5 per cent before May this year, but thankfully we have not seen any impact on housing demand and sales. Rather, demand continues to improve across all the price categories in the residential segment. We feel that there should not be any concern on the demand front while mortgage rates remain under 10%,” said Dhruv Agarwala, Group CEO, Housing.com, Proptiger.com, and Makaan.com.
Piyush Bothra, Co-founder and CFO, Square Yards, said, “The RBI’s decision to recalibrate the repo rate by a moderate 35 basis points sounds reasonable. The Central Bank followed a two-pronged objective with this hike-firstly to keep the inflationary pressures under check without curtailing growth and secondly, to lower the impact on mortgage rates so that residential demand remains promising in the months to come. The affordability of home loan is still good despite consecutive hikes and with the buoyant homeownership sentiment reigning across the nation, the feel-good vibe about homebuying will still continue and property markets will witness optimistic housing sales in 2023.”
Strong GDP growth along with a steady jobs scenario and an elevated capex investment cycle is also likely to keep the realty demand intact.
Amit Goyal, CEO, India Sotheby’s International Reality, said, “With global and domestic inflationary pressures continuing to drive central bankers, the rate hike by RBI is on expected lines. So far, despite home loan interest rates increasing by 150 basis points, demand for residential across top seven cities has been very strong. We believe this momentum should continue till home loan rate remains in single digit. We just hope that strong GDP growth, a steady jobs scenario and an elevated capex investment cycle will keep demand for real estate intact.”
Some property consultants, however, believe that although there won’t be a significant impact of the increase in home loan rates on the luxury housing demand, however, affordable and mid-housing may see some slowdown in the short term.
“This time the RBI increased repo rates by a slower 35 basis points to 6.25%. We can expect banks to continue to increase housing loan rates mirroring the trend in repo rates. Affordable and mid-housing are the most sensitive to prices, and we might see some slowdown in the short term, with an increase in housing loan rates. We, however, do not expect a significant impact on the high-end and luxury housing demand,” said Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India.