The Reserve Bank of India hiked the repo rate again in its MPC meet on Wednesday. However, this time the apex bank has been extremely judicious in their decision to raise the repo rate by 35 bps as against the previous revisions, which were much sharper.
Industry experts believe that the RBI move is a balanced approach towards continued economic growth despite the higher than tolerance level of inflation. This hike was within expectation as the inflation has reduced and is expected to further reduce in the next few quarters, while the concern around domestic economic growth emerges amidst the current global vulnerabilities.
“Since the rate hike cycle in May 2022, home loan products have become expensive by around 150 bps before today’s hike. The lending rates have risen significantly, especially for the loans linked to External Benchmark based Lending Rate (EBLR) where there has been a 100% transmission of repo rate. Loan products linked to MCLR rate are also up by around 108 bps during this period,” said Shishir Baijal, Chairman & Managing Director, Knight Frank India.
No need to mention that this hike will further impact EMIs and reduce home affordability. Simply based on the interest rate impact in this rate cycle, the Knight Frank Affordability Index has recorded a cumulative deterioration of an average of 3% across the country.
However, “as we have seen since the beginning of the rate hike cycle, latent demand has sustained, albeit with some moderation, in cumulative housing sales since the beginning of the rate hike cycle. The 35-bps rate hike by the RBI may be considered moderate in the current context and, therefore, considered a welcome move,” added Baijal.
Developers also feel that the current rate hike is on the expected lines. However, they hoped this to be the last of rate hikes as any further hike in rates will start hurting the home buying sentiment and housing sales may get impacted.
“The apex bank’s decision to hike rates is very much on the expected lines considering the inflationary scenario. It may, however, result in the hardening of home loan rates. The demand for housing has remained strong despite successive hikes over the last one year or so, and we hope it will continue to remain so. We also expect the latest hike to be the last of rate hikes as any further increase will start hurting the home buying sentiment, especially in the affordable and mid-segment,” said Pradeep Aggarwal, Founder & Chairman, Signature Global.
Uddhav Poddar, MD, Bhumika Group, said, “With inflation coming down, we were hopeful of no more rate hikes. The present hike in the repo rate is beyond the comfort level of the real estate sector. The 0.35% hike will take the repo rate from 5.9% to 6.25%, taking the home loan interest rates upwards of 9%. It will increase the cost of servicing loans and for new buyers also increase the cost of real estate. We can only hope that the situation improves and that it turns out to be the last hike.”
Some developers, however, believe that the recent rate hikes have failed to negatively impact housing sales, and backed by strong economic growth, rise in income, job stability, and the growing sense of homeownership, residential markets will remain upbeat in the future as well.
Amarjit Bakshi, CMD, Central Park, said, “Despite the constant rate hikes, the housing segment has outperformed the previous records of sales and new launches. Banks have absorbed the previous rate hikes for new loans, which has sustained the high housing demand and this is expected to remain upbeat. However, we don’t see any substantial impact on the high-end and luxury housing segment as it remains immune to such developments. Owing to the transforming lifestyle of homebuyers and aspirations among new-age buyers, the luxury segment will continue to witness a healthy growth pattern. Backed by strong economic growth, rise in income, job stability, and the growing sense of homeownership, along with other favourable factors, residential markets will remain upbeat.”
“This is the fifth consecutive time that the decision is taken because of rising inflation, and it will have a moderate impact on the housing sector. Though luxury housing will largely remain untouched, mid and affordable segments may get affected in the short term by the decision. Nevertheless, this may bring a pause in the rising realty sales, when buyers are likely to invest in their dream homes,” said Santosh Agarwal, CFO and Executive Director, Alpha Corp.
Thankfully, interest rates are also expected to taper once there is any improvement in the inflation situation.
“RBI has done a fine balancing act as the central bank continued with its efforts to tame inflation and at the same time prioritising growth. Nobody, may it be industry or consumers, want high interest rate regime. We are hopeful and expect that going forward as the inflation situation improves, the rates will definitely taper,” said Saransh Trehan, Managing Director, Trehan Group.