With the Reserve Bank lifting the key repo rate by 90 bps in two attempts, these hikes in benchmark interest rate will make home loans costlier and affect housing sales, especially in affordable and mid-income segments, according to experts and property consultants.
A month after 40 bps increase in key rate in an off-cycle meeting in May, the central Bank on Wednesday raised the benchmark rate by another 50 bps to 4.90 percent.
The central bank’s move to increase the rate by 50 bps was on the expected lines, according to real estate consultancy firms Anarock, Knight Frank India, JLL India, Colliers India, India Sotheby’s International Realty and Investors Clinic. As the RBI is done with its part, now the banks will further hike interest rates, including on home loans.
Anarock Chairman Anuj Puri said: “The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month. Interest rates will remain lower than during the global financial crisis of 2008 when they went as high as 12 per cent and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments.”
Anshuman Magazine, Chairman & CEO – India, South East Asia, Middle East & Africa, CBRE, said, “The RBI’s decision to raise the repo rate was a well-anticipated move, considering the steep rise in global inflation levels as well as the monetary tightening measures being adopted by central banks worldwide. We believe that this decisive action will go a long way in curbing mounting inflation levels in the medium term.”
Colliers India CEO Ramesh Nair is expecting banks to gradually pass on this rise in repo rate in the form of higher home loan rates in the coming months. He advised homebuyers to take advantage of the prevailing home loan rates, with housing prices expected to rise.
“The twin rate hikes by the apex bank would ultimately result in home loan interest rates going up, thereby impacting buyer sentiment,” Dhruv Agarwala, CEO of Housing.com and PropTiger.com, said.
According to Knight Frank India CMD Shishir Baijal, home loans are set to get costlier.
“Rising interest rate along with elevated property construction cost and product price pressures could adversely impact the real estate buyer’s sentiment,” Baijal felt.
India Sotheby’s International Realty CEO Amit Goyal does not see any major impact on the demand side in the housing market, which continues to remain strong. Goyal hoped inflation to cool down by the year-end, enabling the central bank to revert to a lower interest rate regime.
The increase in benchmark lending rates by 90 bps in a short span of time, coupled with the anticipation of further rise in coming months will increase the home loan EMIs significantly as compared to the previous fiscal year, Savills India CEO Anurag Mathur said.
“Thus, of all residential real estate segments, the impact on EMI dependent affordable segment will be highest. Noteworthily, the increase in cost of borrowing is expected to be tangible for developers on the supply side as well,” he added.
Kaushal Agarwal, Chairman of Mumbai-based The Guardians Real Estate Advisory, said that the RBI’s move to hike the repo rate might temporarily limit the growth momentum of the sector but the demand would continue to sustain.
Samantak Das, chief economist, and head of research and REIS, India, JLL, said, “The rise in policy rate is expected to act more as a sentiment disruptor for the home buyers, given that mortgage rates are likely to inch up”.
“Affordability remains high and buying momentum is expected to remain largely intact,” Das added.
According to Investors Clinic founder Honeyy Katiyal, the hike in interest rates will hurt the real estate sector the most. He hoped for a stable interest rate regime.
Shrey Aeren, Managing Director & Country Head of Berkshire Hathaway Home Services Orenda, said, the rate hike acts as a psychological barrier, even in the premium housing segment.
“The impact will be much more on the affordable housing side, which is primarily driven by sentiments, and with increased prices recently announced by the builders, there will be a double burden on consumers,” he added.
Shiv Parekh, Founder of hBits, said the hike in rates will impact the residential housing sector, as it will influence the purchase price immediately for buyers.
