The 25 bps repo rate hike by the RBI today was on the expected lines. This was the sixth consecutive hike that takes the overall increase to 250 bps in FY23. As a result, the benchmark lending rate stands at 6.5%, with the accommodative stance still withdrawn.
Industry experts, however, said that while the hike will increase the cost of borrowing, its impact will be short-lived.
“While retail lending rates would be affected for new home loans, auto loans, institutional borrowing, etc, in reality, lending institutions are likely to increase the tenures for ongoing EMIs. The important point is that the gradual and spaced-out rate-hikes have meant negligible impact on overall consumption – as the GDP growth rate has been forecast at 7.0% for FY23. Remarkably, the residential segment was undeterred and witnessed record sales in 2022. Commercial real estate too continues to be in recovery mode. There remains a strong belief that this could be the final increase of the current rate-cycle, and hence, the supply side will hope for the return of stability in rates through most of this year,” said Anurag Mathur, CEO, Savills India.
Thankfully, some incentives were announced for the real estate sector in the recent Union Budget 2023. The increased allocation to PMAY programme, the push for real estate growth in tier II and III cities, the annual Rs 10,000 crore allocation to Urban Infrastructure Development Fund together signalled the overall direction of policy, and the 25-bps rate increase will not be a roadblock in view of these larger goals, or a major impact on the demand in the medium to long run.
Also Read: RBI hikes repo rate again – What should home loan borrowers do now?
“Going forward, the increase in financing cost and continued high raw material costs on the residential segment, however, could play a crucial role and it is there that next few rate-decisions will be vital,” added Mathur.
Realty experts say the RBI’s monetary policy is a testament to the country’s commitment to financial stability and economic growth. The focus on maintaining inflation in check while supporting the growth of the sector is commendable. The increased repo rate could impact residential sales to some extent, particularly in the affordable segment, but in the mid term, it will have no impact.
“The increase in cost of borrowing will have a direct impact on home buyers, leading to higher EMIs and decreased affordability. It is important to understand the impact of this policy on the market and advise clients accordingly. While the hike may increase the cost of borrowing, it also reflects the central bank’s efforts to control inflation and maintain stability in the economy. The real estate market will continue to be driven by various other factors such as supply and demand, regulatory framework, and overall economic conditions,” said Shiwang Suraj, Founder & Director of Inframantra.
Some developers, however, feel that the mid and affordable housing segments may get impacted, particularly in the short term.
Atul Banshal, Director Finance, Omaxe Ltd, said, “The real estate sector is sensitive to interest rate movements. Therefore, the hike by 25 bps might impact the homebuyers’ sentiment, especially in the mid segment and affordable housing. However, despite the rate hikes in the past, the housing segment has successfully maintained demand momentum across price points. We anticipate there will be a short-term impact on the mid-segment and affordable housing and the expected reduction in the next cycle of RBI review policy offers a balanced outlook. It is essential to keep a long-term perspective and to focus on the broader economic indicators and market conditions that point towards a positive outlook for the real estate market.”
“The RBI’s move to hike the repo rate by 25 bps to 6.5% was known. The first decision post the Union Budget 2023 has been 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. While inflation is expected to be moderate, it will still be above 4% in FY24. It has also projected a GDP at 6.4 per cent growth for the next fiscal which is a good sign for the ultimate evolution in the economy. It may bring a pause in the rising realty sales during the time when buyers are likely to invest in their dream homes,” said Santosh Agarwal, CFO and Executive Director, Alpha Corp.
Saransh Trehan, Managing Director, Trehan Group, said, “With the latest increase in the repo rate, home loan rates will cross the level of 9% per annum. So far the demand in the housing sector remained unimpacted with the past increases, but any further hike in the interest rate will certainly put a break on the demand in the housing sector.”
However, considering the growth-focused union budget announced by the government earlier this month, combined with the positive market sentiments, the affordable and mid segment housing will most likely witness a significant upsurge in demand in the coming months.
“The increase in the repo rate is an accommodative move as per current micro and macro economic conditions globally as well as domestic markets. Controlling inflation is the RBI’s mandate, and the apex bank is showing prudence in taking corrective measures to curb rising inflation. However, considering the growth-focused fiscal budget announced by the government earlier this month, combined with the positive market sentiments, it is quite evident that the affordable and mid segment housing is going to witness a significant upsurge in demand in the coming months. We are confident that residential sales would increase by at least 20%in this quarter and at least 30% on YOY basis overall,” said Pradeep Aggarwal, Founder and Chairman, Signature Global (India) Ltd.
