On August 5, 2022, the Reserve Bank of India (RBI) raised the repo rate by 50 basis points (bps) to 5.4%, taking it above pre-pandemic 2020 levels, as this has been speculated for some time.
This is the third time the RBI has hiked the repo rate in a matter of months, by 140 basis points in three months, to be precise. One basis point is equal to 0.01 percentage point.
A rise in the repo rate leads to a corresponding rise in interest rates and deposit rates. The repo rate is basically the rate at which the RBI lends to banks and lending institutions.
Now the real estate sector, which was reeling from the pandemic-induced foreclosure and falling interest from buyers due to factors such as job losses, has had a mixed reaction to the rate hike. repo, saying buyer sentiment may increase in the high-end segment, but may decline in the affordable housing category.
Real estate demand will remain strong in the luxury segment
Saransh Trehan, chief executive of the Trehan Group, said the previous increase in repo rates had little to no impact on demand in the real estate sector, and consumer sentiment is also buoyant. thanks to the opening of the economy.
“The RBI has already raised interest rates a few times this year, and this has had very little to no impact on real estate demand, as the Indian economy is one of the best performing economies. in the world, and consumer sentiment is also on a high. As a result, demand for all kinds of properties remains high and the scenario is unlikely to change in the near future.”
Pankaj Pal, Executive Director of AIPL Group, said the rise in the repo rate was in line with expectations given the prevailing inflationary scenario.
“Lending and deposit rates should firm up. This could have a slight impact, but we do not expect a major demand-side impact on the housing market. It is likely to remain robust as real estate is widely viewed by buyers as the best investment option given the volatility in the equity market, gold as well as other investment opportunities,” a- he declared.
Amit Goyal, CEO of India Sotheby’s International Realty, said the rise was in line with expectations, and now that the repo rate is back to pre-pandemic levels, home loan rates could stabilize at 8% from interest rate per year.
Expensive loans could reduce demand for affordable housing
Some, however, expect cautious buying behavior, even to the point of a slowdown in demand for housing in the affordable and economy categories. It would also lead to an increase in the cost of home loans, which could dampen sentiment, they said.
According to V. Swaminathan, Executive Chairman, Andromeda and Apnapaisa Loans: “With this 50 bp repo rate hike, we are seeing the highest rates that existed before the pandemic in 2019. This calibration of lending rates by the RBI could signal a downward trend in borrowers seeking home loans as monthly payments equivalent to new and existing home loans (EMIs) are expected to rise, ushering in a wait-and-see attitude among new homebuyers.
Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers, said the RBI decided to withdraw its dovish stance due to the resilience shown by the national economy, despite global and geopolitical challenges. . He added, however, that this could affect buyer behavior in the affordable housing segment.
“The RBI kept its growth target unchanged at 7.2% for the financial year 2022-23. As for the repo rate hike, several banks have already started raising mortgage rates, and this trend is expected to continue.
The housing sector, which had seen a recovery in demand across all segments over the past year, may now see a decline in buyer sentiment, particularly in the affordable and mid-range category due to the increase 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 mortgage rates are now expected to hover around 8 per annum, which may put a short-term psychological drag on demand for the mid-range and affordable housing segment, but that shouldn’t last long.
“We are still in the comfort zone of a single digit rate. With pent-up housing demand post-Covid, along with strong economic growth and a stable labor market, we expect demand momentum to continue in India’s residential housing segment, particularly in the top six cities, where office leasing and absorption has been strong,” he added.