The real estate developers do not see the fresh hike of 50 basis points, announced by the Reserve Bank of India (RBI) on Friday, having a significant impact on the residential real estate sales. However, property consultants expect the momentum to slow down, and may even act as a dampener to sales in the festive season.
This is the third consecutive increase in the repo rate taking it to 5.4%, the same as the pre-pandemic levels, and marking a full reversal of the policy during Covid. With this hike, there is a total of 140 basis points increase since May 2022, which has been done keeping in mind the rise in global rates driven by the US Fed and the central banks of Europe.
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According to Knight Frank India, assuming the full transmission of the cumulative rate hikes till Friday, a prospective homebuyers’ affordability shrinks by around 11%—which means a purchasing capability of a house of Rs 1 crore value has shrunk to Rs 89 lakhs now.
However, realty developers believe that given the rise in employment and income levels, the interest rate hikes will not dent residential sales. “Against the backdrop of rising income and employment levels and buoyant customer sentiment, this spike in rates is unlikely to affect residential sales. The sustained momentum in the real estate sector will, in turn, continue to have an enduring and positive impact on the country’s overall economic growth,” said Abhishek Kapoor, chief executive officer, Puravankara Limited.
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Atul Goyal, chief financial officer, Brigade Enterprises also said that while there is an increase in interest rates for housing loans, the demand that the sector is currently witnessing is expected to remain the same.
“The pandemic has effected a paradigm shift in people wanting to own homes rather than rent them. There is also the availability of surplus income which prospective buyers prefer to invest in real estate. With home loan interest rates being equal to or lower than pre-pandemic rates, we expect the current momentum in demand to continue, and the future looks bright,” he said.
Saransh Trehan, managing director, Trehan Group also said that the past hikes have had little to no impact on the demand for real estate. “The consumer sentiment is on a high, and 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,” he said.
However, the consultants are not too optimistic. Anuj Puri, chairman – ANAROCK Group said, that the hike by 50 basis points will lead home loan lending rates into ‘the red zone’, which were major factors that drove housing sales across the country since the pandemic. “This whammy comes along with the inflationary trends of primary raw materials, including cement, steel, labor, etc., that have recently led to a rise in property prices. This will affect residential sales,” Puri said. According to Anarock Research, around 1.85 lakh units were sold in the first six months of 2022 across the top seven cities.
Shishir Baijal, chairman & managing director, Knight Frank India said, “The increase of interest rates and the subsequent transmission of these into the home loan rates, while having the capability of impacting demand, we hope that the latent demand for housing will soften the impact of the latest change in the repo rates.”
Samantak Das, chief economist, and head of research and REIS, India, JLL said, the inflationary pressures and the resulting change in RBI’s earlier dovish policy stance could not have come at a more inopportune time for the sector. “Likely transmission of another 30-40 basis points increase in home loan rates may cause some mid-cycle slowdown for the residential sector and likely result in some ripple effect on the upcoming festive season,” he said.
Ramesh Nair, CEO, India and managing director, Market Development, Asia, Colliers said the higher home loan rates could dent homebuyers’ sentiments in the affordable to mid category.