RBI’s decision to increase repo rate may marginally impact home sale

Hyderabad: The real estate industry, which was thriving on low-interest home loans, may hit a small bump post the Reserve Bank of India’s decision to increase the repo rate by 40 bps. While the full impact of the rate hike can only be gauged after a few months, the initial reaction is that it could […]

Hyderabad: The real estate industry, which was thriving on low-interest home loans, may hit a small bump post the Reserve Bank of India’s decision to increase the repo rate by 40 bps. While the full impact of the rate hike can only be gauged after a few months, the initial reaction is that it could impact the decision of new homebuyers and, in turn, also have a marginal impact on home sales.

The RBI on Wednesday after an unscheduled MPC meeting hiked the benchmark lending rate to 4.40% to contain inflation that has remained stubbornly above the target of 6% for the last three months. This is the first rate hike since August 2018 and the first instance of the Monetary Policy Committee making an unscheduled increase in the repo rate (the rate at which banks borrow from the RBI).

---

In a response to the rate hike, many private and public sector banks also announced their decision to hike interest rates. Private sector lender ICICI Bank revised its external benchmark lending rate (EBLR) to 8.10%, and state-owned Bank of Baroda raised the rate to 6.9% with immediate effect. Two other public sector banks – Bank of India and Central Bank of India – also announced rate hikes. And if reports are to be believed, many other banks may follow suit.

Impact on Realty

While some experts say the RBI move signals the beginning of the end of low-interest home loans, others point out that this could only impact new homebuyers and not those who have already made a decision.

Telangana Developers Association president GV Rao believes it may not impact genuine buyers as the hike will only increase the number of EMIs. “Although full details of the rate hike are awaited, I believe this hike could only increase one or two EMIs. This is not much of a concern for genuine homebuyers. However, any rate increase will have an impact on sales and new homebuyers may go into a wait-and-watch mode,” he says.

Anarock Group chairman, Anuj Puri says, “Unfortunately, for home buyers, this hike signals an imminent end to the all-time low-interest regime, which has been one of the major drivers behind home sales across the country since the pandemic began. Moreover, rising interest rates and inflationary trends in basic raw materials in construction including cement, steel, labour cost etc. will add to the burden of the residential sector, which did significantly well in the previous quarter – Q1 2022.”

Puri adds the rise in interest rates will ultimately impact overall acquisition cost for homebuyers – and may dampen residential sales to some extent.

Sterling Developers chairman and MD Ramani Sastri says, “the increase in repo rate will likely have an impact on the industry as residential demand has been positively revived in the post-pandemic context and needs to be fostered. The real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability and also provides the required fuel for the growth of the economy along with the real estate sector, which is allied with several other industries.”

Reiterating Rao’s views on a minimal impact on property sales and prices, Kalisetti Naidu, a real estate space analyst, says there will be a certain amount of traction in home sales.

“Old customers will have to reschedule their EMIs as the number might go up. However, new loans will not see much of an impact as of now. Coupled with material cost that is already rising and which has increased property prices by 4 to 6% in the last 3-4 months, this hike could be one of many factors that could contribute to another price hike in the coming months,” adds Naidu.