The Reserve Bank's rate hike will not have a major impact on home sales, which has seen a revival in the past few months, say experts.
The Reserve Bank’s rate hike will not have a major impact on home sales, which has seen a revival in the past few months, say experts. The apex bank for the first time in over four years raised the repo rate, or the short-term lending rate, by 0.25 per cent to 6.25 per cent, on inflation concerns arising from surge in oil prices. Naredco national president Niranjan Hiranandani said the hike is justified on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards. “It will not make a major difference to real estate. However, in the long run, we would prefer rates coming down,” he said.
Property consultant JLL India chief executive officer and country head Ramesh Nair said the hike may seem to dampen sentiments in the market, but in terms of real estate, may have little or no impact. “As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term,” he reasoned. While the rate hike might result in banks raising their home loan rates, the central bank has given the borrowers something to cheer by increasing the priority sector lending (PSL) slabs, which is likely to make low-ticket sized loans cheaper.
Home loans up to Rs 35 lakh in metros (with population of 10 lakh and above) will now qualify for the benefits of priority sector lending, against up to Rs 28 lakh earlier. Similarly, loans up to Rs 25 lakh will now qualify under PSL for other centres, compared with the up to Rs 20 lakh earlier.
However, the house cannot cost more than Rs 45 lakh in a metro and Rs 30 lakh in other centres. Pankaj Bajaj, president of the NCR chapter of builder’s body Credai feels 0.25 per cent change in rates is not material to sway the purchase decision of a prospective urban family which is thinking of buying a home. “The government has made a number of other interventions in the last one year to revive housing demand. I don’t think a marginal rate hike would have too much of an impact.
Home loan rates are still quite attractive,” he said. However, according to PropEquity chief executive officer and founder Samir Jasuja, the hike in the policy rates may adversely impact the positive momentum witnessed in the realty sector in the last few months. The sector had started to slowly improve, with witnessing a 48 per cent jump in new home sales in the March quarter, according to Jasuja. “Banks may further hike the borrowing rates for home loans further pushing the homebuyers to fence.
However, we expect customer demand to stay solid in the mid-income and affordable housing segment, especially projects by fundamentally sound developers whose projects are nearing completion,” he said. Echoing similar views, Knight Frank India chairman and managing director Shishir Baijal said the increase in policy rate will delay the revival of the country’s housing market, which after suffering a prolonged period of slump has just begun to show early signs of improvement on account of uptick in affordable housing.
Meanwhile, the apex bank today observed that the level bad loans for the ticket size of up to Rs 2 lakh has been high and is rising briskly, and it might tighten norms by increasing loan to value ratio and risk weight.