The RBI’s decision to raise the repo rate is likely to affect home sales, especially in affordable and middle-income categories, according to real estate developers and advisers.
The RBI’s decision to raise the borrowing rate by 50 basis points to 5.40 percent will make home loans more expensive, thus reducing affordability for potential home buyers, she added.
However, industry experts believe the impact on sales will be short-lived as housing market fundamentals are strong. Some developers believe that mortgage rates are in a comfortable zone and expect housing demand to continue through the holiday season.
On the policy, CREDAI president Harsh Vardhan Patodia, brokerage firm said: “…we expect the repo rate hike to temporarily disrupt sales in the sector, but given the positive sentiment from home buyers, the effect may not last long .” This is the third consecutive rate hike after rising 40 basis points and 50 basis points respectively in May and June. In total, the RBI has raised the borrowing rate by 1.40 percentage points since May this year.
Niranjan Hiranandani, Vice-Chairman of Naredco and MD Hiranandani Group, said: “Since mortgage lending is at the flexible rate, a short-term interest rate spike will certainly hurt home buyers’ sentiments, but the long-term average cost is positive. The increase in repo rates will have an effect on interest rates and home buyer attitudes, said Surendra Hiranandani, CMD of House of Hiranandani.
Shriram Properties CMD M Murali said the marginal changes will have minimal impact on purchasing decisions. “We believe positive sentiment will continue given the current robust demand.”
Brigade Enterprises CFO Atul Goyal also said it will have only a marginal effect on the real estate sector.
“While this would mean an increase in home loan interest rates, the demand the industry is currently seeing is expected to remain the same. The pandemic has caused a paradigm shift among people looking to own a home rather than rent it,” he said. .
Abhishek Kapoor, CEO of Puravankara Ltd, said housing loan interest rates are likely to rise. “However, against the background of rising income and employment levels and buoyant customer sentiment, this rise in rates is unlikely to affect home sales.”
Manoj Gaur, chairman of CREDAI NCR, said there will not be “much impact” on consumer confidence, which remains strong at the moment.
Anuj Puri, president of real estate consultant Anarock, said the 50 basis point gain is definitely on the higher side, and mortgage rates will now move further into the red zone.
This finally marks the end of the best low interest rate regime of all time, one of the key factors that has boosted home sales across the country since the pandemic, he added.
“This blow comes along with inflationary trends in primary commodities, including cement, steel and labor, which have recently led to a rise in real estate prices. Together, these factors – rising mortgage rates and construction costs – will affect home sales which fared reasonably well. well into the first half of 2022,” said Puri.
Knight Frank India CMD Shishir Baijal said the third consecutive rate hike will worsen affordability and affect home buyers’ feelings.
“With the cumulative rate hike to date assuming full transfer, the affordability of potential home buyers is shrinking by about 11 percent i.e. ability to buy a home valued at Rs 1 crore which is now shrinking to Rs 89 lah,” he said.
Home sales rose 60 percent a year in eight major cities in January-June this year at 1,58,705 units, the highest semi-annual demand in nine years, mainly due to a lower base effect and mortgage rates, according to Knight Frank India.
Anshuman Magazine, Chairman & CEO – India, Southeast Asia, Middle East and Africa, CBRE, said the RBI’s decision could affect the cost of capital, “although an immediate impact on housing demand is uncertain. ” “Post-pandemic, homeownership demand has increased, and with the holiday season approaching, it could generally withstand marginal changes in lending rates,” Magazine said.
Pankaj Pal, Group Executive Director of AIPL, said interest rates on loans and deposits are likely to rise. “It may have a small impact, but we don’t foresee a major impact on the demand side in the housing market.” Rohan Pawar, CEO of Pinnacle Group, said an upward revision will affect home buyer sentiment, which has remained positive despite the latest series of revisions that have led to a rise in home loan interest rates.
This move by the RBI to raise the repo rate again could temporarily limit the real estate sector’s growth momentum, said Kaushal Agarwal, chairman of The Guardians Real Estate Advisory.