Rate hike may not impact realty

Hyderabad: The Reserve Bank of India has once again increased the repo rate by 50 basis points (bps) thus taking the cumulative hike in rates to 90 bps in a span of just two months. Although this rate hike was on expected lines, many industry analysts and experts suggest that this might impact home buying […]

Hyderabad: The Reserve Bank of India has once again increased the repo rate by 50 basis points (bps) thus taking the cumulative hike in rates to 90 bps in a span of just two months.

Although this rate hike was on expected lines, many industry analysts and experts suggest that this might impact home buying sentiment in the short run although the overall segment may remain bullish.
After a surprise rate hike in May, the central bank decided to again increase the repo rate in order to fight inflation. This hike will also lead to an increase in lending rates among banks and non-banking financial companies which will, in turn, result in higher EMIs for the existing borrowers.

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Real estate funder Walton Street Blacksoil Fund’s Kaushik Desai said, “with the rise in repo rates for the second time in a short period of time, the EMIs for home loans are expected to rise as banks and financial institutions have already started marking up their lending rates. Although the increased home loan rates may impact sentiments in the short run, we believe that increased disposable household income in the past two years is expected to offset the hike and home loan rates would still remain attractive compared to their peak in 2019.”

Motilal Oswal Real Estate funds director and CEO Sharad Mittal opined that the decadal low mortgage rates along with government-driven incentives during the pandemic provided stability to the sector. “Now with mortgage loan rates set to go up, we may notice a slight demand blip in the short term but the overall outlook on the sector remains strongly bullish in the long term,” he said.

While the rate hike may translate into an almost percentage point increase in repo rate to 4.9 per cent in the last one month, it still remains lower than the pre-pandemic level of 5.15 per cent. “This is an opportune time for homebuyers to take advantage of the prevailing home loan rates at a time when prices are also expected to rise in most of the market led by revival in demand,” says Ramesh Nair, CEO, India and MD, market development, Asia, Colliers.

Most of the experts also argue that they see more rate hike announcements lined up for the future in order to curb the growing inflation and keep the GDP growing. Trehan Group MD Saransh Trehan opined that the hike may hit the cost of construction by 5 to 7 per cent.

Anarock chairman Anuj Puri terms this hike as inevitable and says that ‘we are now entering the red zone and the hike will impact the affordable and mid-segment. “This is a tightrope walk under the best of circumstances. The rate hike will push up home loan interest rates, which had already begun going upward after the surprise monetary policy announcement last month,” he said.

The buying sentiment has seen a big change and it will withstand the marginal fluctuations in lending rates, opines Ramani Sastri, Chairman, and MD, Sterling Developers Pvt. Ltd. “There is still pent-up demand and even after the repo rate hike, affordability is still high and the home buyer needs to take advantage of that in the short term,” he adds.

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