NEW DELHI: The decision of the Reserve Bank of India (RBI) to raise repo rates by 40 basis points would have an immediate impact on real estate, auto and consumer durables sectors as most of the purchases in these sectors happen through loan financing.
The real estate sector, which has been seeing a pick-up in sales due to low-cost of financing, could be impacted by the move. The sector is already seeing a cost escalation due to inflation and the rise in lending rates may only make the cost of acquisition go up.
“This rise in interest rates will ultimately impact overall acquisition cost for homebuyers - and may dampen residential sales to some extent,” says Anuj Puri, chairman of ANAROCK Group, a property consulting company.
The realty prices have risen by 5-10% across different markets due to raw material inflation. But sales were still rising due to low home loan rates, which were about 6.7-7%. Since most retail loans are now repo rate linked, the impact would be an immediate increase in lending rates by 40 basis points. However, the quantum of hike in rates of home loans, which are linked to the Marginal Cost-based Lending Rates (MCLR), would be announced in a few days. Several banks have recently already increased the MCLR rates by 5-10%.
However, some realtors are hopeful that the RBI’s move would help in curbing inflation, neutralizing the impact of higher financing cost in the medium term. They also feel the market sentiment won’t be too affected as real estate prices are increasing and buyers would like to take advantage of prices at current levels.
Vikas Wadhawan, Group CFO, Housing.com, PropTiger.com & Makaan.com, says the real estate industry was expecting the move given high inflation. He believes that though the prices would go up, the market sentiments would be stable.
Auto sector, which has been seeing a drag in sales owing to multiple factors such as high fuel prices and increase in raw material prices, would also feel the burden of the hike in auto loan rates. According to Mitul Shah, Head-Research at Reliance Securities, 50% of the passenger vehicles and 90-95% of the commercial vehicles are financed by loans.