As widely expected, the Reserve Bank of India (RBI) hiked the repo rate for the fourth time in a row by a further 50 bps to 5.9% in its bi-monthly policy meeting on Friday – a move which will make all types of loans, including home loans, more expensive now.
Commenting on the rate hike, real estate analysts said the move could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housingt segments.
Anuj Puri, Chairman, ANAROCK Group, said the 50 bps hike by the RBI was expected, especially since no global economy has hinted towards any kind of moderation. Inflation continues to ravage almost all economies, and India is no exception. ANAROCK’s recent Consumer Sentiment Survey also highlighted that at least 61% respondents saw high inflation as a major concern for them, seriously impacting their disposable incomes.
“With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments,” he said.
The hike in home loan rates will be in addition to the other increasing costs such as inflationary trends of construction input costs. With the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter.
“The silver lining, however, is that only when the home loan interest rates breach the 9.5% mark will housing sales see a ‘High Impact’. If rates remain between 8.5% and 9%, the impact is expected to be moderate,” Puri added.
Amit Goyal, CEO, India Sotheby’s International Realty, has a similar view. “The hike might impact consumption sentiments negatively ahead of the festive season. However, from a home buyers’ perspective, home loan rates will still remain below 9% per annum and they must utilize this opportunity and make their purchases by cashing in on offers and festive discounts in the market.”
Some realty consultants feel the home buying sentiment is not likely to be impacted significantly as the rate hike was on expected lines and the market has largely recovered from the pandemic lows.
“The RBI hiked the repo rate for the fourth time in a row as the government remains committed to tame inflationary pressures amidst global headwinds. In response, banks are expected to continue raising their home loan rates in the next few months. With the festive season in the offing, developers are likely to dole out attractive schemes to attract fence sitters and first-time homebuyers. As the rate hike was on expected lines and the market has largely recovered from the pandemic lows, the home buying sentiment is not likely to be impacted significantly,” said Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.
Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com, observed, “The 50-basis point hike in the repo rate to 5.9% was expected as the RBI intensifies its efforts to tame inflation. While banks will eventually be forced to pass on this increased cost to borrowers, the possibility of this happening during the ongoing festive season is low. Considering that a large number of home buyers in India make their purchase decision during this time of the year, financial institutions would not like to dampen the festive spirit by effectuating a rate hike immediately. Even when they do so, the robust buyer sentiment along with renewed investors’ interest in the residential real estate market is likely to continue to support the demand for homes in India.”
The continuous rate hikes, however, may ultimately increase the cost of construction and make homes costlier as the cost of borrowing for builders will also increase.
Vishal Sharma, Vice President – Wealth Management, at Berkshire Hathaway Home Services Orenda, India, said, “Even though the current RBI rate hike by 50 bps has been much thought out, it is going to affect the real estate sector. For one, unlike the usual comments that mostly talk about the impact on retail loan schemes, such as home loans, the RBI rate hike also affects institutional loans. As a result, it will not only lead to a hike in the cost of home loans for home buyers, but the cost of borrowing for builders will also increase. Every rate hike by the Central Bank will have a ripple effect on financial products too.”