RBI Monetary Policy | Rate Hike May Impact Sentiments Of Homebuyers: Developers

In all, the RBI has raised benchmark lending rate by 1.40 percentage points since May this year

Housing sales across the country are likely to be impacted, especially in affordable and mid-income categories, following the Reserve Bank of India’s (RBI’s) decision to hike repo rate on Friday, according to some real estate developers and consultants, the PTI reported.

The six-member monetary policy committee (MPC) of the RBI headed by Governor Shaktikanta Das on Friday announced to hike the policy rate by 50 basis points (bps) to 5.4 per cent to contain soaring inflation. In all, the RBI has raised benchmark lending rate by 1.40 percentage points since May this year.

This is the third consecutive rate hike after a 40 basis points and 50 basis points increase in May and June, respectively.

Real estate consultant Anarock Chairman Anuj Puri said, “A hike by 50 basis points is definitely on the higher side, and home loan lending rates will now edge further into the red zone.” This finally marks the end of the all-time best low-interest rates regime, one of the major factors that drove housing sales across the country since the pandemic, he said.

“This whammy comes along with the inflationary trends of primary raw materials, including cement, steel, labour, etc., that have recently led to a rise in property prices. Together, these factors, rising home loan rates and construction costs, will impact residential sales that did reasonably well in the first half of 2022,” Puri added.

Colliers India CEO Ramesh Nair said several banks have already begun hiking home loan rates and this trend is expected to continue.

“...the higher home loan rates could dent homebuyers’ sentiments, especially in the affordable to mid category. However, we do not see a significant impact on the high-end and luxury segments due to the higher home loan rates," he said.

Knight Frank India CMD Shishir Baijal said the third subsequent rate increase will mean a deterioration of affordability and may impact the sentiments of homebuyers.

“With the cumulative rate hike until today, assuming complete transmission, a prospective homebuyers’ affordability shrinks by around 11 per cent i.e. from an ability of purchasing a house of Rs 1 crore value shrinking to Rs 89 lakh now,” he said.

Samantak Das, head of research and chief economist, JLL India, said the likely transmission of another 30-40 basis points increase in home loan rates might cause some mid-cycle slowdown for the residential sector. “This could see some short-term disruption to the sales growth momentum. It is however a note of caution and not a reflection of the overall residential sector’s health, with the medium to long-term growth prospects remaining intact,” he added.