Builders expect slowdown in housing demand in short-term on RBI's rate hike

Builders welcomed the RBI's decision to increase the existing limits on individual housing loans by co-operative banks.

Published: 08th June 2022 04:50 PM  |   Last Updated: 08th June 2022 04:50 PM   |  A+A-

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NEW DELHI:  Housing demand is likely to be affected in short-term as home loans are set to become costlier following the RBI's decision to hike repo rate by 50 basis points, according to real estate developers.

The cost of borrowing for developers could also increase, impacting their profit margins, they said, while hoping that the move would control inflation thus bringing down the cost of construction raw materials like steel and cement.

Builders welcomed the RBI's decision to increase the existing limits on individual housing loans by co-operative banks.

According to property consultant Anarock, housing sales across seven cities increased 71 per cent in the January-March period to 99,550 units, the highest quarterly sales since 2015, on low interest rates on home loans.

CREDAI National President Harsh Vardhan Patodia said: "With consumer loans and home loans getting costlier, there may be an impact on demand in the short term." He welcomed the 100 per cent increase in the limit for individual housing loans by urban cooperative banks and rural cooperative banks.

"The rate hike will impact the robust sales in the residential housing segment, although in the short term. So far, the post COVID recovery and the bullish sentiments were supported by the low interest rate to a great extent," realtors body NAREDCO President Rajan Bandelkar said.

However, Boman Irani, President of CREDAI-MCHI, said, the impact on the consumers in MMR (Mumbai Metropolitan Region) would be near zero. Hiranandani group MD Niranjan Hiranandani said that the home loan interest rate hike will "impair the home buying rally as pay out in terms of EMI is scheduled to rise".

"But according to me, this crater in demand sentiment is a makeshift move, as home loans are based on floating rate for a long tenure," he added.

Tata Realty and Infrastructure MD & CEO Sanjay Dutt said the hike in the lending limits for cooperative banks is a positive step that will encourage housing development outside of Tier 1 and Tier 2 cities.

"What needs to be watched out for in the future is the inflation trajectory, because the input cost for supply is on the higher side, and when combined with the loan rates, it will cause mild discomfort for home buyers because prices will now rise and will quickly return to pre-pandemic levels," Dutt said.

According to Gaurs group CMD Manoj Gaur, the RBI's move would make home loan dearer and affect sales in the short term. "However, by reining in the inflation, it will ultimately benefit the real estate sector that is bogged down by high input costs," he said.

The RBI's decision will hamper the sentiments of the buyers, especially first time home buyers who are heavily reliant on home loans, said Amit Modi, President of CREDAI Western Uttar Pradesh, adding, "It will slow down the pace of sales."

AIPL Group Executive Director Pankaj Pal said: "...after the policy rate hike announced by the apex bank last month, there has been some softening of prices of commodities, including steel. We hope with today's policy rate hike, prices would soften further, which would benefit the real estate sector as well as end-users immensely."

As per Trehan group MD Saransh Trehan, the hike in policy rates will result in increasing the cost of borrowings and it may hit the cost of construction by 5 to 7 per cent. "We don't expect a big impact on housing demand as of now," he said.

The sector is currently reeling from higher input costs, which have increased property prices by a margin, said Rahul Talele, Group CEO of Kolte Patil Developers.

"As repo rates rise, so will home loan rates. The positive side of this increase is that it will encourage home buyers to invest in residential assets because rates can now return to pre-pandemic levels at any time. The negative side is that many home buyers may experience mild discomfort as a result of the consistent rise in price," he said.

Residential Real Estate, Bhartiya Urban CEO Ashwinder R Singh said that this will surely result in an increase in home loan EMIs. "However, we will see a balance with the cost of input materials like steel seeing a reduction from the peak. Home demand is expected to remain stable, owing to the fact that a large portion of buyers are still end-users," he noted.

According to Sterling Developers Chairman & MD Ramani Sastri, the RBI's move comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer's sentiments. "Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too," he said.

Pune-based Gera Developments MD Rohit Gera said: "...given the fact that the overall increase in cost of homes over the past 5 years has been negligible, this increase in interest rates can be absorbed by borrowers looking to buy homes. The increase will affect the cost of borrowings for developers already reeling under severe margin pressure on account of inflation in input costs."

"As the inflation is expected to remain above RBI upper range tolerance level of 6 per cent till Dec this year; it will certainly have some repercussions on housing uptake. The RBI is focused on controlling the escalation of inflation in the country but must simultaneously be careful to not hurt the growth of the real estate market," S Raheja Realty Director Ram Raheja said.

This will have a short-term effect on the sentiments of homebuyers, said Pritam Chivukula, co-founder and Director of Tridhaatu Realty.


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