RBI’s 50 bps policy rate increase likely to impact housing sales in the festive season
MUMBAI: The Reserve Bank of India (RBI) announced a 50 basis points (bps) policy rate increase on Friday to control the rising inflation amidst global headwinds and support the local currency INR which has fallen to its record lows against the US dollar.
This, according, to real estate industry experts, will have an impact on housing sales in the ongoing festive season as EMIs on loan will become dearer, leading to an overall surge in ownership cost.
“With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments, said Anuj Puri, Chairman - ANAROCK Group.
According to Puri, the hike in home loan rates is in addition to the other increasing costs such as inflationary trends of construction input costs. With the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter, he added.
Puri estimates that only when the home loan interest rates breach the 9.5% mark will housing sales see a ‘High Impact’. If rates remain between 8.5-9%, the impact is expected to be moderate.
The 50 bps hike of Friday takes the total rate hike since May 2022 to 190 BPS. Interest on home loans offered by commercial banks too has seen a steep hike in the last 4 months with the country's largest lender - the SBI-offering home loan rates at present between 8.05% to 8.55% while leading private lender HDFC Bank offering home loans with interest rates varying from 8.10% to 9%.
Shishir Baijal, Chairman & Managing Director, Knight Frank India, said that while the rate hike is expected in line with the global trend, it will have an impact on the sentiments across all buying categories, especially in the wake of the current festive season.
“Tight liquidity conditions along with the repo rate hike would lead to a significant rise in the cost of funding, impacting home loan rates as well. Going by the current trends we expect about 50% of this will be passed onto the home loan borrowers. A rise in home loan rates will further impact affordability across the markets. As per Knight Frank affordability index will deteriorate by another 2% This might slow down home buying decisions for the short to medium term,” added Baijal.
Ramani Sastri - Chairman & MD, Sterling Developers, said that the recent consecutive repo rate hikes had already added to buyers’ overall acquisition cost and with gradually increasing loan rates, homebuyers’ apprehension could set in quickly and they might adopt the wait-and-watch sentiment.
“The real estate sector had started seeing gradual recovery across key property markets, driven primarily by end-users and this decision will have an adverse impact for the interest rate-sensitive sector. Subsequent rate hikes will also mean a deterioration of affordability as low-interest rates have been the biggest factor in the resurgence for real estate demand in the last few years,” he added.
Cyrus Mody, Founder & Managing Partner, Viceroy Properties LLP, however, believes that a silver lining for India is that despite the rate hike we are witnessing demand for housing, unlike in the West and China where we can see a clear pricing pressure.
“With the fiscal situation improving, the Indian economy is expected to grow upwards of 7% for FY23 - going forward, we expect demand for larger homes and high-quality real estate projects to stay intact despite the rate or price rises,” said Mody.
The RBI’s Monetary Policy Committee (MPC) in its September meeting decided to reduce its real GDP forecast for FY23 to 7.0%, Q2FY23 growth is seen at 6.3%, Q3 at 4.6% and Q4 at 4.6%.