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Interest rate hike impact: Increased repo rate to hit affordable housing the most, say builders

The increase in the lending rates because of the repo rate hike will make home loans costlier as compared to the previous fiscal year and also impact the home buying sentiment.

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The second scheduled MPC meeting of the fiscal year increased the benchmark lending rates by 50 basis points on Wednesday, taking the cumulative increase to a significant 90 bps in the initial few months of FY23.

Industry experts said Brent crude prices breaching $120 per barrel and domestic retail inflation at an 8-year high in April have played a pivotal role in recalibration of growth prospects. With geopolitical tensions resulting in globalisation of inflation, the World Bank and the RBI have revised India’s GDP growth rate to 7.5% and 7.2%, respectively, for the ongoing fiscal year.

However, the increase in the lending rates because of the repo rate hike will make home loans costlier as compared to the previous fiscal year and also impact the home buying sentiment.

“Leading private and public sector banks have already passed on the previous repo rate hike by increasing home loan interest rates by 30-40 bps across loan categories. The increase in benchmark lending rates by 90 bps in a short span of time, coupled with the anticipation of further rise in the coming months, will increase the home loan EMIs significantly as compared to the previous fiscal year. Thus, of all residential real estate segments, the impact on the EMI-dependent affordable segment will be highest. Noteworthily, the increase in the cost of borrowing is expected to be tangible for developers on the supply side as well,” said Anurag Mathur, CEO, Savills India.

Amit Modi, President, CREDAI Western UP, said, “The increase in the repo rate by 50 bps will hamper the sentiment of buyers, especially first-time home buyers who are heavily reliant on home loans. It will be a barrier to the growth trajectory of the revived sales post-Covid. Millions of homebuyers will be sidelined and alienated from the property markets after the hike. It will slow down the pace of sales that has taken a rise in the recent past.”

Developers also felt that housing sales may get impacted during the festive season.

“The RBI move to hike the overall repo rate by 50 bps to 4.90% was widely expected. The decision is taken in the view of rising inflation. It will have a vital role in the growth of the realty sector and the overall contribution to the Indian economy. Nevertheless, this can bring a pause in the rising realty sales, when buyers are likely to invest in their dream homes foreseeing the festive season,” said Santosh Agarwal, CFO and Executive Director, Alpha Corp.

Some builders, however, were also of the view that although home loans will become costly, the RBI move will tame inflation which will ultimately benefit the real estate sector.

Manoj Gaur, CMD, Gaurs Group & President-CREDAI NCR, said, “It has been a fine balancing act by the RBI. While it has not given to the hawkish stance that a few observers had expected, at the same time it has signalled its will to tame inflation. We understand that the hike in the repo rate by 50 BPS will impact interest rates of consumer loans and make home loan dearer right at the time when the real estate sector was coming out of the throes of pandemic and affect sales in the short term. However, by reining in inflation it will ultimately benefit the real estate sector that is bogged down by high input costs.”

“The repo rate hike by the RBI is on expected lines. This time the target before the RBI was to rein in the inflation through monetary control measures. The move will definitely help the country as well as benefit the real estate sector that is already battling high input costs on account of various external factors and the consequent increase in fuel costs. Although this increase will impact the buying power of consumers, we feel the impact will be taken in stride,” observed Prateek Mittal, Executive Director, Sushma Group.

The recent surge in housing sales witnessed post pandemic is also believed to be in favour of the realty market.

Vinay Wadhwa, General Manager – Sales, Vatika Limited, said, “The inflation rate is at an all-time high now. With the increase in construction material cost, there’s a pressure on pricing as well. The decision of increasing the repo rate will be a jinx on the real estate market. Home loans that come under RLLR will now cost more and there will be an increase in other loan rates and EMIs as well. Not to forget that banks now have an increased Marginal Cost of Lending Rate since the beginning of this fiscal year. However, despite all odds, we’re still hopeful as the real estate industry has witnessed a pent-up demand in property buying post the Covid-19 pandemic.”

Pradeep Aggarwal, Chairman, Signature Global (India) Ltd, said, “The RBI had no other option left but to rein in the inflation through monetary control measures. This might slightly influence real estate, but it will not impact consumer confidence or demand. Simultaneously, increasing the 100% limit of individual loans by the apex bank for co-operative banks would surely spread positive communication among each stakeholder.”

“The increase in the repo rate by 50 basis points will not make any difference to the market, at least in the segment we operate in. The demand and the sentiment of home buyers are in our favour and, at present, it is beyond these considerations. An increase in the rate of interest won’t make any difference, particularly in the ‘highly affordable segment,” said Vikas Garg, Deputy Managing Director, MRG World.

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