The Reserve Bank of India hiked the repo rate by another 35 basis points (bps) to 6.25 per cent at its Monetary Policy Committee meet on December 7, 2022.
The policy rate is now at its highest level since August 2018. This is the fifth consecutive rate hike this year.
The move is a balanced approach towards continued economic growth despite the higher than tolerance level of inflation. With the repo rate now at 6.25 per cent, how will it affect your existing home loan equated monthly instalments (EMIs) and the real estate sector at large? There may be some repercussions on housing uptake, too, in future.
This hike will further impact EMIs and reduce home affordability. Simply based on the interest rate impact in this rate cycle, the Knight Frank Affordability Index has recorded a cumulative deterioration of an average of 3 per cent across the country.
Let’s take a look at how this will impact a borrower who has taken a home loan of Rs 30 lakh on a 20-year period at a rate of interest of 8.50 per cent. At present, he would be paying Rs. 26,035 as EMI. But if we factor in the 0.35 per cent increase due to the repo rate hike, the new interest rate would jump to 8.85 per cent, taking the EMI amount to Rs. 26,703.
“This implies the borrower incurs an additional Rs 668 per month for the same home loan repayment. And they would have to shell out Rs. 1.60 lakh over the entire duration of the loan amount,” says V Swaminathan, executive chairman, Andromeda.
According to the real estate experts, the hike in repo rate will undoubtedly push up home loan interest rates, which had already crept up after four consecutive rate hikes this year.
However, as long as interest rates remain in single digits (mainly within 9.5 per cent), the impact on housing will, at best, be moderate.
“If they breach this point, we will see some real pressure on residential sales volumes in the months to come – especially in the affordable and lower mid-range housing segments,” says Anuj Puri, chairman, Anarock Group.
However, experts further noted that the impact of the last four consecutive rate hikes early this year was minimal. This was clearly validated by the outstanding performance of the housing sector in the last quarter (Q3 2022).
“However, as we have seen since the beginning of the rate hike cycle, latent demand has sustained, albeit with some moderation, in cumulative housing sales since the beginning of the rate hike cycle. The 35 bps rate hike by RBI may be considered moderate in the current context, and therefore, is considered a welcome move,” says Shishir Baijal, chairman and managing director, Knight Frank India.
According to Anarock Research, as many as 88,230 units were sold across the top-7 cities in Q3 2022, after the three recent rates hikes. Consumer demand remained strong with sales rising by 4 per cent against the preceding quarter and 41 per cent annually.
