Contrary to general expectations, the RBI decided to keep the repo rates unchanged at 6.5% today, which is believed to be good for the residential real estate market which faces a tough road ahead amid massive layoffs by large corporates the world over. The RBI’s decision to keep the repo rate unchanged is also a welcome respite to homebuyers.
This particularly gives relief to affordable and mid segment homebuyers who feared a possible rate hike today, making property buying via home loans even harder. As it is, affordable housing has been under stress since the pandemic. This segment (units priced <INR 40 lakh) saw its overall sales share dip between 2019 and 2022 and further in Q1 2023. ANAROCK Research indicates that back in 2019, out of the total sales of nearly 2,61,400 units across the top 7 cities, nearly 38% sales were in the affordable segment.
“But in 2022, out of the total 3,64,880 units sold across the top 7 cities altogether, about 26% were in the affordable category. There has been a further dip in overall sales share in Q1 2023, as well. Out of total 1.14 lakh units sold in the top 7 cities in Q1 2023, affordable housing comprised just 20% share (or. approx. 23,110 units sold). It bears keeping in mind that after the remarkable performance in Q1 2023, the housing market is now staring at major headwinds with layoffs, rising property prices, etc. which will pose a challenge in the short term. The respite of home loan rates remaining unchanged is, therefore, very welcome,” said Anuj Puri, Chairman, ANAROCK Group.
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Welcoming the RBI decision to pause the rate hike, Aditya Kushwaha, CEO & Director, Axis Ecorp, said, “We believe this move will boost the confidence of homebuyers and their faith in the Indian real estate market. It will also help in sustaining the current demand trends. Even though inflation remains to be an issue of concern, the Indian economy is in good shape. NRI homebuyers have been making the most of the currency depreciation and investing in the luxury real estate and holiday home segment. This, along with domestic homeownership sentiment, will continue to drive NRI investment in this segment.”
According to industry experts, rising home loan interest rates have become a growing concern for both homebuyers and supply-side stakeholders.
“To some extent, the higher home loan interest rates have dampened the demand for affordable and mid-segment housing as buyers in these segments are more price-sensitive. While the luxury and high-end segments have not been significantly impacted yet, further increases could have affected the overall industry. We remain optimistic that inflation will come under control and there will be no further increase in policy rates,” said Amit Goyal, CEO, India Sotheby’s International Realty.
Mohit Jain, Managing Director, Krisumi Corporation, said, “We applaud the RBI’s decision to maintain the current policy rates, as it will prevent any further increase in home loan rates. The higher interest rate on home loan has started pinching borrowers, as it negatively impacts loan eligibility of home buyers. Despite this, there hasn’t been a significant impact on the demand in the housing sector so far as home buyers are aware that it is a passing phase and once inflation comes under control, interest rate will also come down.”
The past three quarters, in fact, have seen a gradual rise in home loan interest rates, causing a significant impact on borrowers as rates have surged to over 9%, marking a 40-50% increase from their historical low.
“Any additional policy rate hike could push home loan interest rates even closer to the psychological threshold of 10% per annum, creating a substantial impact on buyer sentiments and affordability. Given the increase in home loan interest rates, we strongly encourage state governments to provide some relief to homebuyers by offering stamp duty rebates or registration fee waivers. Such measures would help mitigate the financial burden on buyers and make homes more affordable for those looking to buy their home,” said Pradeep Aggarwal, Founder & Chairman, Signature Global (India) Ltd.
While challenges in geopolitics and the resultant downside risks to growth prevail, the next few months will be critical and define the course for 2023. It is a positive sign that the headline inflation is moderating, however it continues to remain above RBI’s target and thus remains a monitorable.
Whatever be the case, “the unchanged repo rate is likely to give some breather to homebuyers as the RBI has raised the repo rate by a cumulative 250 basis points since May 2022, thereby pushing up interest rates for homebuyers to 9.5% and above. Given the expected nominal growth in income levels paired with sturdy prices in a cautious economic environment, RBI’s pause on repo rate is a much-needed step to boost real estate sentiment,” said Vimal Nadar, Head of Research at Colliers India.