• Experts say that low interest rates have been the biggest factor in the revival of real estate demand over the past few years and hence a rise in rates would mean a hindrance in affordability
The Monetary Policy Committee (MPC) of the Reserve Bank of India, which sets interest rates, has increased the policy repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect. This is the fifth consecutive hike by the central bank. Repo rate is the rate at which RBI lends money to all commercial banks.
Persistent rate hikes can lead to short-term turbulence in overall housing demand when buyers are optimistic about making a home buying decision and may increase the overall acquisition cost of buyers. The real estate sector had started witnessing a gradual recovery in key property markets, mainly driven by end-users, however, repeated rate hikes could hit the interest rate-sensitive sector.
What do experts say on today's RBI repo rate hike?
Amarendra Sahu is the founder and CEO of Nestaway Technologies
The rate hike by the RBI will make home loans costlier, prompting potential homebuyers to opt for rentals. The repo rate is now close to a 4.5-year high and is likely to remain high for an extended period of time. Mortgage rates are now again at or even higher than they were before COVID. This will probably give more traction to the rental market. Due to the increase in the cost of buying a home and the increase in interest rates, renting will become much more affordable. Home rental has little to do with home loan rates. We expect the Central Bank to be on a longer pause before resuming rate cuts in the later part of CY23.
Ramani Shastri -- Chairperson & MD, Sterling Developers
Low interest rates have been the biggest factor in the revival of real estate demand over the past few years and hence a rate hike would mean a hindrance in affordability. However, there is a positive sentiment, as the affordability and disposable income of new-age homebuyers is much better than in the past. Despite the headwinds, we are still optimistic as there is a huge population base and a lot of demand from first time home buyers. Real estate is certainly one of the best avenues to invest in and looking ahead, we are confident that the markets will witness sustained growth in the next few years.
Lincoln Bennett Rodrigues, President and Founder, Bennett & Bernard Company
Due to the current increase in the repo rate, we do not see much impact on the luxury housing segment as the demand of home buyers in this segment is beyond these factors. While loan rates have increased marginally, the affordability of home loans is still very good. We believe the positive sentiment in the luxury segment will continue driven by the change in buying patterns post the pandemic. However, the reduction in key rates going forward will be widely celebrated as low interest rates have been a key factor in the revival of overall real estate demand and improvement in liquidity conditions which is vital for the sector.
Anuj Puri, President - ANAROCK Group
The 35 bps rate hike by the Reserve Bank of India - the fifth consecutive rate hike this year - comes as no surprise. Now with the repo rate at 6.25%, there may be some impact on housing uptake. This hike will undoubtedly push up home loan interest rates, which have already gone up after four consecutive rate hikes this year. However, as long as interest rates remain in the single digits (mainly within 9.5%), the impact on housing will be at most moderate. If they breach this point, we will see some real pressure on residential sales volumes in the coming months – especially in the affordable and lower mid-range housing segments.
Cyrus Modi, Managing Partner, Viceroy Properties
RBI was expected to hike rates by 35 bps. The broad softening of inflation and steady economic growth are the main reasons behind RBI softening its rate hike this time as compared to previous hikes of 50 and 75 basis points. Having said that, we believe repo rates have peaked with the current hike, and that the central bank is likely to go on a long pause and monitor macroeconomic trends before deciding its next course of action. This could leave room for a possible possibility of a rate cut by the RBI by the end of the next calendar year.
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