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How the hike in home loan rates will impact housing market

From SBI to HDFC Ltd and from PNB to LIC Housing Finance, almost all banks and HFCs have revised their lending rates upwards in recent weeks, which certainly doesn’t seem to be a good move for the housing sector.

According to industry experts, a 1 per cent hike in housing loan interest rate reduces house purchase affordability by 7.4%.

The recent hike in home loan interest rates by banks and housing finance companies – following an off-cycle repo rate hike by the RBI in May – has come at a time when the real estate sector has just started picking up momentum after a couple of years.

From SBI to HDFC Ltd and from PNB to LIC Housing Finance, almost all banks and HFCs have revised their lending rates upwards in recent weeks, which certainly doesn’t seem to be a good move for the housing sector as it will ultimately impact the overall acquisition cost for homebuyers and may dampen residential sales to some extent.

According to industry experts, a 1 per cent hike in housing loan interest rate reduces house purchase affordability by 7.4%.

“At a time when the real estate sector had just begun to pick up, the increase in home loan interest rates, even though negligible, would act as a psychological barrier for the buyers. Coupled with the increase in input costs that to an extent had forced developers to increase the prices of property, it would act as a dampener to the buyer’s spirit, especially the ones looking for homes in the affordable segment,” says Sanjay Sharma, Director, SKA Group.

Compiled By Paisabazaar.com

For the real estate sector dealing with sluggish sales during the last few years, the apprehension is writ large.

“The increase in interest rates by banks could not have come at a worse time. With buyers shaking off the negative spirits of the pandemic and seeking to benefit from the historic-low costs of the dwelling units as well as historic-low home loan interest rates, the move by the banks would definitely have an impact on buyers’ sentiments. Further, it will affect the real estate sector that had begun to pick pace after a gap of two to three years and which among others is one of the largest generators of employment. Most of all, it also signals that the days of low home loan interest rates are over,” says Nayan Raheja, Raheja Developers.

Dharmesh Shah, CEO, Hero Realty, says, “The increase in rates has come at a wrong time. However, this also considerably marks a sense of stability as the end of low-interest rates will bring the serious buyers into focus.”

Some real estate developers are also of the view that this round of interest hikes could have been deferred for some time.

“The interest rate hikes by banks, especially after the RBI raised the base rates, was a foregone conclusion. However, I wish that the banks had waited for a few more months for this series of hikes. At least it could have waited for the real estate sector to pass on the benefits of the reduction in fuel prices and the decrease in the price of iron (through hike in export duty) to the customers. The move will also affect the development of the commercial and retail segments,” says Sachin Gawri, CEO & Founder, Rise Infraventures Limited.

A few developers said the current round of hikes could make the buyers apprehensive and they might as well adopt a wait and watch attitude for some more time.

“The current hike in home loan interest rates by banks will surely convey to home buyers that interest rates are only going to go northwards. Contrary to the popular perception that any such increase only affects the affordable housing segment, the move, according to me, will also leave a big impact in the big-ticket luxury segment that involves high volumes of money, hence higher EMIs and higher interest amount. Besides, since one of the banks has increased its RPLR three times in one month, the move will also add to the uncertainty regarding the quantum of hikes in the future,” says Deepak Kapoor, Director, Gulshan Homz.

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