Rate hike to have limited impact on housing sales: Developers | The Financial Express

Rate hike to have limited impact on housing sales: Developers

Although the inrease in the repo rate was along the expected lines, industry experts and developers feel the rate hike does not augur well for the real estate sector, especially the residential segment, as it will result in increased mortgage rates.

Rate hike to have limited impact on housing sales: Developers
Developers feel the hike in the repo rate will have some impact on the current housing market, however, the overall impact will be limited, and the industry will continue to perform well in the coming time.

In a bid to rein in inflation, maintain global interest rates parity and ensure the stability of the currency, the RBI in its MPC meet on Friday decided to increase the repo rate by 50 bps for the fourth consecutive time to 5.90%.

Although the inrease in the repo rate was along the expected lines, industry experts and developers feel the rate hike does not augur well for the real estate sector, especially the residential segment, as it will result in increased mortgage rates.

Taking a cue from the previous transmission, home loan interest rates are likely to go up in the range of 25-30 bps, although the interest rate after this hike would be still below what the homebuyers had to pay 8 to 9 years back – more than 10%.

“With today’s hike in the repo rate, the revised home loan EMI would increase by an average of 8-9% as compared to 6 months back. The continuous rise in home loan EMI is hence expected to act as a sentiment disruptor. We believe that home loan interest rates inching towards 9% and above may result in moderation of housing sales growth in the medium term, especially post the current festive season,” said Dr. Samantak Das, Chief Economist and Head of research and REIS, JLL, India.

Das added, “It is likely that banks might also delay the transmission, taking into account higher housing demand during the festive season.”

Also Read: How will rate hike impact homebuyers, and what should they do now?

Some developers feel the rate hike was necessary in the current scenario.

Sumit Agarwal, Director sales and leasing, Grandthum, said, “The hike in the repo rate was quite necessary to balance the inflation across the globe due to pandemic effects, war around the trade routes and increasing prices of raw materials. The RBI decision to implement a rate hike of 50 basis points is justifiable as it would not impact the overall demand in the real estate sector. The realty sector has been doing well due to the rising demand of Grade A projects and the start of the festive season. This hike can be easily assimilated as per the recent trends.”

Sanjay Sharma, Director, SKA Group, said, “The rate hike is marginal and would not have any major impact on buyers as the loan rates would increase minimally. This was quite expected with the global scenario prevailing in real estate. Developers would witness a convenient method of coping with input costs with the help of this decision by RBI.”

Impact of rate hike on property sales

Whatever may be the reason for the rate hike, it would certainly have some impact on housing sales by making the home loans dearer, while the commercial segment will also get impacted.

Uddhav Poddar, MD, Bhumika Group, said, “The RBI had to walk on a tightrope this time. Retail inflation, the Ukraine-Russia war and an increase in lending rates by global central banks did not leave it with much space. On the other hand, the impact on realty, especially on the commercial segment, is certain. For developers, it is going to increase the cost of financing projects, and for a majority of our customers who are in the retail business, it will increase EMIs, hiking the overall price for the consumers. Having said that, the economic outlook is positive and India, being on a growth path, has the potential to absorb the interest rate hike and move ahead.”

Thankfully, sales of residential units have increased by more than 2x during the first half of 2022 vis-à-vis the same period last year and the growth trajectory is maintained during the July-September quarter. Developers are hopeful that this trend will be witnessed in the festive season also.

Harsh Vardhan Patodia, President, CREDAI National, said,“The real estate sector has been performing well as in the H1 of 2022 it has surpassed the decade-long record for sales. The demand continues to stay robust and we expect it to perform well in the next few months as well as the festive period is considered an auspicious time to invest in assets like properties. We don’t expect the rise in the repo to impact the positive consumer sentiment significantly. Developers are also running multiple festive offers which will aid overall demand.”

Pradeep Aggarwal, Founder and Chairman, Signature Global (India) Ltd, said, “The 50 bps repo rate hike by the apex bank seems an accommodative move as per the current micro and macro economic conditions globally as well as domestic markets. Inflation is close to 7% and the government and the apex bank would be taking corrective measures to curb the inflation. However, considering the ongoing festive season combined with high market sentiments, affordable and mid segment housing is going to witness a huge spike in demand. We are highly bullish that sales would increase by about 20% to 30% in this quarter and on YoY basis also.”

“This is the fourth consecutive rate hike by the apex bank in the last five months. However, the demand in the housing market continues to remain robust despite subsequent rate hikes. In fact, in many cities it is improving. So, we don’t see any major impact in the current scenario even after today’s RBI decision. However, with home rates hovering between 8% and 9%, further tightening, if any, will start to impact the sector and thereby the overall economy,” said Saransh Trehan, Managing Director, Trehan Group.

Developers feel the hike in the repo rate will have some impact on the current housing market, however, the overall impact will be limited, and the industry will continue to perform well in the coming time.

“There are plenty of buyers both in the cost-efficient as well as premium & trendy segments. Interestingly, expats are also showing tremendous interest in real estate and the investor class is also pivoting lured by the tangible nature of the asset. Price growth so far has been moderate and this is one of the best times to buy homes. Moreover, the pandemic has also induced buyer interest in other categories such as plotted developments, villas, and farmhouses. Though these are niche segments, their growth will help the overall industry,” said Suren Goyal, Partner, RPS Group.

Earlier as well, repo rates were increased. However, the industry remained largely unperturbed with accelerated growth in most of the major markets in India. Consumer sentiments are strong and there is a visible demand in the market. Moreover, buyers now understand that property prices from here would continuously rise for an extended period of time, and hence rather than wait and watch, the most suitable step is to make the move. A reboot in the economy and strong structural parameters such as a surge in urbanization and attractive demography will also dovetail the market in a positive direction,” said Ankit Aggarwal, MD, Devika Group.

It is also the festive time and offers, discounts and benefits offered by developers may help counter any home loan rate hike impact on residential sales.

“The rate hike will have only limited impact on housing sales in India as the tremendous growth witnessed by the sector in the past few quarters is not looking to slow down in the coming months. As the festive season is about to begin from next week, we can expect offers, discounts and benefits offered by developers to counter any home loan rate hike impact on sales. India’s infrastructure macro trends are positive, and this will drive the growth in the housing sector,” said Shiwang Suraj, Founder & Director, Inframantra, said.

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