Rate hike impact on home sales likely to be moderate

According to housing sales data of top 6-8 cities, the impact of the last four consecutive rate hikes early this year has been minimal

Published: 08th December 2022 07:44 AM  |   Last Updated: 08th December 2022 07:44 AM   |  A+A-

home sale, real estate

For representational purpose

Express News Service

NEW DELHI: Lending rate hike by the Reserve Bank of India (RBI) is likely to have a moderate impact on housing sales. The central bank on Wednesday increased the benchmark rate by 35 basis points (BPS) to 6.25 per cent. The repo rate has now gone up 225 bps since May 2022 and this in turn has pushed housing loan rates to over 9 per cent. 

Most industry experts believe that as long as interest rates remain in single digit, the impact on sales would be moderate as demand from end-users remains strong. According to housing sales data of top 6-8 cities, the impact of the last four consecutive rate hikes early this year has been minimal.

“As long as interest rates remain in single digits (mainly within 9.5%) the impact on housing will at best be moderate. If they breach this point, we will see some real pressure on residential sales volumes in the months to come – especially in the affordable and lower mid-range housing segments,” Anuj Puri, Chairman – ANAROCK Group.

Shishir Baijal, CMD, Knight Frank India, says since the rate hike cycle in May 2022, home loan products have become expensive by nearly 150 bps before Wednesday’s hike. He added that this hike will further impact EMIs and reduce home affordability.

For loans linked to External Benchmark based Lending Rate (EBLR) there has been a 100% transmission of repo rate. Loan products linked to MCLR rates are also up by around 108 bps between May and before the latest rate hike.

Ramani Shastri, chairman & MD of Sterling Developers, however, says that the rate hike would be detrimental to the sector. “The real estate sector has started seeing gradual recovery across key property markets, driven primarily by end-users, however, the repeated rate hikes may impact the interest rate-sensitive sector,” he added.

ALSO READ | Any more hike in rates could result in bad news for real estate sector

As per Adhil Shetty, CEO, Bankbazaar.com, the best way to reduce interest burden is to prepay loan through annual bonus or other source of income. He says, “If you pay 5% of the loan balance every year, you can pay off your 20-year loan in 12 years. Prepaying one additional EMI every year can close your loan in just 17 years, and if you increase your EMI by 5% every year, you can finish your loan in less than 13 years. A 10% increase in your EMI every year can close your loan in about ten years.”

How to reduce EMI burden as home loans get dearer
According to Adhil Shetty, chief executive officer of Bankbazaar.com, the best way to reduce interest burden is to prepay loan through annual bonus or other source of income. Shetty says, “If you pay 5% 
of the loan balance every year, you can pay off your 20-year loan in 12 years. Prepaying one additional Equated Monthly Instalment (EMI) every year can close your loan in just 17 years, and if you increase 
your EMI by 5% every year, you can finish your loan in less than 13 years. A 10% increase in your EMI every year can close your loan in about 10 years.”

Be ready to shell out more

Outstanding home loan: G20 lakh; tenure: 20 yr

Interest rate:8.5%

Current EMI: Rs 17,356
After 0.35% repo rate increase

Interest rate: 8.85%
EMI: Rs 17,802

Increase in EMI:  Rs 446

Outstanding home Loan: 
G30 lakh; tenure: 20 yr
Interest rate: 8.5%

Current EMI: Rs 26,035
After 0.35% repo rate increase
Interest rate: 8.85%

Monthly EMI: Rs 26,703
Increase in EMI: `668



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