scorecardresearch

Above 50 bps rate hike will impact homebuyer sentiment, residential sales: Experts

The hike is expected to be between 25 and 50 bps, which will most probably impact both homebuyer sentiment and housing sales, even if it fails to derail the housing momentum.

Above 50 bps rate hike will impact homebuyer sentiment, residential sales: Experts
The good news is that as long as interest rates stay clear of the double-digit red zone that they saw during the global financial crisis in 2008, housing demand is likely to continue – albeit at a marginally lower pace.

Soon after hiking the repo rate by 40 bps to 4.4% in May, the Reserve Bank of India is all set to again increase the key policy rate in the MPC meet on Wednesday.

The hike is expected to be between 25 and 50 bps, which will most probably impact both homebuyer sentiment and housing sales, even if it fails to derail the housing momentum.

“We expect the repo increase to be between 40 and 50 bps in the upcoming MPC meeting with future increases leading to ~5.75% (where we were exactly 3 years ago) or upwards by the end of FY23. Last 40 bps increase in May caused homes loans to move in to 7% +/- range from ~6.5% earlier. And by the end of this financial year, home loan rates will likely touch ~8%. This is unlikely to derail the housing momentum, but its will certainly soften it. Coupled with increasing prices, the growth may slow down a bit in FY23, after a record FY22,” says Ashish Khandelia, Fouder, Certus Capital.

Also Read: How the hike in home loan rates will impact housing market

Industry experts say there is little doubt that the RBI will further increase the repo rates in tomorrow’s announcement of the monetary policy review. What remains to be seen is the quantum of increase.

Anuj Puri, Chairman, ANAROCK Group, says, “The rate hike could be anywhere between 25 and 50 bps. If the hike is above 50 bps, it may impact homebuyer sentiments, and thus residential sales. It is now inevitable that home loan interest rates will finally depart from the ‘sweet spot’ territory that they have been occupying over the last 2 years, and enter into the yellow alert zone of lower overall affordability.”

The good news is that as long as interest rates stay clear of the double-digit red zone that they saw during the global financial crisis in 2008, housing demand is likely to continue – albeit at a marginally lower pace.

“Even at the height of the global financial crisis, housing demand did not entirely evaporate. In India today, housing demand is driven by genuine end-user sentiment – the desire to own homes remains strong and will largely withstand marginal fluctuations in lending rates,” adds Puri.

Some realty consultants observe that the rate hike by the RBI is expected in order to balance the rising inflation in the country. As most of the banks follow the repo rate benchmark for floating loans, it may have an immediate impact on home buying, dampening the sentiments. However, housing demand may not get impacted to a large extent as the realty market is currently bullish in India.
 
“Most of the time banks may not immediately burden the loan seekers or existing loan payers with an increased rate. The buyers also have an option of increasing the tenure of the loan and keeping the EMI amount intact. New loan seekers should plan their finances in a way that they have a cushion of 5% hike in EMI in the coming months too. However, considering the bullish real estate market, the repo rate increase may not have a long-term impact,” says Ashish Narain Agarwal, Founder & CEO, PropertyPistol.com.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Most Read In Money