The majority of developers agreed that the increased interest on home loans is to impact the cost of construction and to put pressure on the end customer even though they still fear the rate hike will make home loans costlier and will affect the residential sales.
On Wednesday, as expected the RBI increased the repo rate by 50 basis points to 4.9%. RBI made this decision to tame inflation.
Some developers fear that this decision will affect the residential sales and it’s unnecessary to mention that it will surely make the home loans costlier.
Group CEO, Housing.com, Proptiger.com, and Makaan.com Dhruv Agarwal commented on the same “The RBI move to increase the repo rate by 50 basis points to 4.90% was widely expected. We can say that we are in the midst of a rate up-cycle as inflation remains outside the comfort level of the apex bank. However, the twin rate hikes by the apex bank would ultimately result in home loan interest rates going up, thereby impacting buyer sentiment that has remained consistently strong during the record low-interest rate regime over the past year. The increased cost of borrowing would also make the construction of housing projects costlier for developers, ultimately putting price pressure on the end-user.”
RBI also announced a piece of positive news that will reduce some of the effects of rate hikes, the limit for Individual housing loans for states, and district cooperative banks by 100%.
“A two-thong approach by the RBI governor and the Government of India by means of monetary and fiscal intervention is an absolutely necessitated step to administer economic growth as well as arrest inflationary pressure. A corroborated approach is hailed by India Inc to sustain economic resiliency and boost sentiments. It is, however, evident that a home loan interest rate hike will impair the home buying rally as payout in terms of EMI is scheduled to rise. But according to me, this crater in demand sentiment is a makeshift move, as home loans are based on floating rates for a long tenure. The EMI constraint will be eased as rates are expected to normalize once the global situation is stabilized” said Dr.Niranjan Hiranandani, vice president- of NAREDCO and MD Hiranandni Group.
Akhil saraf, Founder and CEO, Reloy, a real estate digital amenities, and referral sales solutions provider believes that this rate hike is not going to impact to a large extent.
Ridhima Kansal, Director, Rosemoor, observed “Given the high inflation, the RBI had no option other than to increase policy rates to curtail the excess liquidity in the market and put a check on inflation. An increase in the repo rate will push the lending rates up and eventually hit home buyers. However, given the possibility that the interest rate goes up by 50-100 basis points, it will still remain under the comfort zone of below 8% per annum. With other factors and market conditions in favor of home buyers, sales momentum is expected to continue without any major hiccups.”
“In the backdrop of rising inflation, the RBI has implemented a rate hike by 50 basis points. This is the second consecutive rate hike after the apex bank increased the repo rate by 40 bps last month. This is a move that has come as a no-brainer since the RBI has attributed the current scenario to tensions between Russia & Ukraine along with currency depreciation & high supply shock.” she added.
The escalation in rates has definitely prompted retail borrowers to adopt a bearish outlook when it comes to borrowing as the cost of taking out loans is now noticeably higher. “However, looking at the consistent pace of improved urban demand, there is still optimism as far as uptake in commodities such as home fragrances is concerned, which are predominantly emerging as a popular product among buyers,” she further commented.
Some developers also requested the government to concentrate on the price of raw materials and reduce the hike in prices.
“The cost of key construction materials like steel and cement has gone up significantly in the last six months or so, which has pushed up construction costs substantially. However, after the policy rate hike announced by the apex bank last month, there has been some softening of prices of these commodities, including steel. We hope with today’s policy rate hike, prices would soften further, which would benefit the real estate sector as well as end-users immensely” Pankaj Pal, Group Executive Director, AIPL also added in the ongoing discussion.