As widely expected, the RBI on Wednesday raised the repo rate by 50 basis points to 4.9%, which was imminent given the current inflationary trajectory and geopolitical concerns.
A majority of consultants and property developers hailed RBI’s decision to bring inflation under control. However, they worried that rising rates would ultimately make home loans more expensive, hurt buyer sentiment and hurt home sales.
Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com and Makaan.com, said, “RBI’s decision to raise the repo rate by 50 basis points to 4.90% was widely expected. We can say that we are in the middle of a rate hike cycle because inflation remains outside the comfort level of the apex bank. However, the double rate hike by the apex bank would ultimately lead to higher interest rates on home loans, hurting buyer sentiment which has remained consistently strong during the record low interest rate regime of the last year. The increased cost of borrowing would also make it more expensive for developers to build housing projects, ultimately putting pressure on prices for the end user.
However, the RBI’s announcement to increase the limit on individual housing loans by state and district co-operative banks by 100% is a positive move that will cushion some of the impact of the rate hike. The flow of credit to the housing sector is also expected to improve, with rural cooperative banks beginning to finance residential projects.
Dr. Niranjan Hiranandani, Vice Chairman of NAREDCO and MD-Hiranandani Group, observed, “A two-pronged approach by the Governor of the RBI and the Government of India through monetary and fiscal intervention is an absolutely necessary step to administer economic growth as well as stopping inflationary pressure. A substantiated approach is hailed by India Inc to maintain economic resilience and boost sentiment. It is clear, however, that rising interest rates on home loans will hurt the resumption of home purchases, as payments in terms of EMI are expected to increase. But in my view, this crater in demand sentiment is a gesture of fortune, as mortgages are based on a variable rate for a long duration. The EMI constraint will be eased as rates are expected to normalize once the global situation stabilizes.
Akhil Saraf, founder and CEO of Reloy, a provider of digital real estate equipment and benchmark sales solutions, however, believed that home sales would not be affected to a large extent.
“Given the high inflation, the RBI had no choice but to raise policy rates to reduce excess liquidity in the market and control inflation. An increase in the repo rate will drive up rates lending and will eventually hit homebuyers. However, given the possibility that the interest rate will increase by 50 to 100 basis points, it will still remain in the comfort zone below 8% per year. With d ‘other factors and favorable market conditions for home buyers, the sales momentum should continue without major hitches.
Ridhima Kansal, Director of Rosemoore, said: “Amid rising inflation, the RBI has implemented a rate hike of 50 basis points. It is the second consecutive rate hike after the apex bank raised the repo rate by 40 basis points last month. It is a move that has become a no-brainer since the RBI attributed the current scenario to tensions between Russia and Ukraine, as well as currency depreciation and high supply shock.
The rise in rates has undeniably prompted retail borrowers to take a bearish outlook on borrowing as the cost of taking out a loan is now significantly higher. “However, given the steady pace of improving urban demand, there is still optimism regarding the adoption of products such as home fragrances, which are emerging primarily as a popular product among buyers,” she said.
Some promoters have also urged the government to make concentrated efforts to curb soaring prices of raw materials such as cement, bricks, steel, etc.
Suren Goyal, Partner, RPS Group, said: “We welcome the apex body’s decision to increase global repo rates by a further 50 basis points. This will help contain inflation and smooth economic growth. A rise in inflation can soften the stance on an otherwise robust real estate sector. Already, commodity prices are rising and a rampant rate of inflation will push input costs further north, leading to cost overruns for the developer fraternity. In such a case, they will have no choice but to pass on the price increase to buyers. Meanwhile, the government is also expected to make concentrated efforts to reduce soaring prices of raw materials such as cement, bricks, steel, etc. This will also relieve the sector.
“The cost of key construction materials like steel and cement have risen dramatically over the past six months or so, which has significantly increased construction costs. last month, the prices of these raw materials, including steel, fell slightly. We hope that with today’s increase in key rates, prices will come down further, which will greatly benefit the real estate sector as well as end-users,” said Pankaj Pal, Group Executive Director of AIPL.