The Reserve Bank of India (RBI) on August 5, 2022, raised the repo rate by 50 basis points (bps) to 5.4 per cent, taking it above the pre-pandemic levels of 2020, as has been speculated in a while.
This is the third time that the RBI has raised the repo rate in a span of few months, by a huge 140 bps in three months, to be precise. One bps equals 0.01 percentage point.
A hike in repo rate leads to a corresponding hike in interest as well as deposit rates. The repo rate is essentially the rate at which the RBI lends to banks and lending institutions.
Now, the real estate sector, which was reeling under the double whammy of the pandemic-induced lockdown and lower buyer interest on account of factors, such as job losses, has given a mixed reaction to the hike in repo rate, saying that buyer sentiment could rise in the high-end segment, but could dip in the affordable housing category.
Saransh Trehan, managing director, Trehan Group, said that the previous increase in repo rates had little to no impact on the demand in the real estate sector, and the consumer sentiment is also buoyant on the back of the economy opening up.
“The RBI has already raised interest rates a couple of times this year, and it had very little or rather no impact on the demand for real estate, as the Indian economy is one of the best performing economies globally, and the consumer sentiment is also on a high. As a result, the demand for all kinds of properties continues to remain high, and the scenario is unlikely to change in the near future.”
Pankaj Pal, group executive director, AIPL, said that the repo rate hike was on expected lines given the prevailing inflationary scenario.
“The lending and deposit rates are likely to firm up. It may have a slight impact, but we don’t foresee a major impact on the demand side in the housing market. It is likely to remain robust as real estate is largely viewed by buyers as the best investment option considering the volatility in the equity market, gold as well as other investment avenues,” he says.
Amit Goyal, CEO, India Sotheby’s International Realty, said the hike was on expected lines, and now with the repo rate back to the pre-pandemic level, home loan rates could settle down at 8 per cent rate of interest per annum.
Some though are, however, expecting a cautious buyer behaviour, to the point of even a downturn in demand for homes in the affordable and budget categories. It would also lead to home loans getting costlier, which could dampen sentiments, they said.
Says V. Swaminathan, executive chairman, Andromeda loans and Apnapaisa: “With this repo rate hike of 50 bps, we are seeing the highest rates that existed pre-pandemic during 2019. This lending rate calibration by the RBI could signal a downward trend in borrowers looking for home loans, as both new and existing home loan equated monthly instalments (EMIs) are set to go up, ushering in a wait-and-watch attitude among new homebuyers.”
Ramesh Nair, CEO, India and managing director, market development, Asia, Colliers, said that the RBI decided to withdraw its accommodative stance because of the resilience shown by the domestic economy, despite the global and geo-political challenges. He, however, added that this could affect buyer behaviour in the affordable housing segment.
“The RBI has kept its growth target unchanged at 7.2 per cent for FY 2022-23. With respect to the rising repo rate, several banks have already begun increasing home loan rates, and this trend is expected to continue.”
The housing sector, which had seen a recovery in demand across segments over the last year, could now witness a dip in buyer sentiment, especially in the affordable and mid- category on account of the increased home loan rates, he said.
That said, the high-end and luxury segments are unlikely to see a significant impact, he added.
Goyal added that home loan rates are now expected to settle around 8 per annum, which can put a short term psychological dent on the demand for the mid- and affordable housing segment, but that shouldn’t continue for long.
“We are still in the comfort zone of a single digit rate. With pent up demand for housing post-Covid, along with a strong economic growth and a steady job market, we expect the demand momentum to continue in India’s residential housing segment, especially in the top-six cities, where office leasing and absorption has been strong,” he further said.
