Builders expect slowdown in housing demand in short term on RBI’s rate increase

The RBI’s decision to raise the benchmark interest rate will make home loans costlier and affect housing sales, especially in affordable and mid-income segments, according to property consultants.

The RBI on Wednesday raised the key benchmark rate by 50 basis points (bps).

Property consultancy firms Anarock, Knight Frank India, JLL India, Colliers India, India Sotheby’s International Realty and Investors Clinic said that the RBI’s move was on expected lines to control inflation and this would result in an increase in interest rates on home loans.

Anarock Chairman Anuj Puri said: “The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month.” Interest rates will remain lower than during the global financial crisis of 2008 when they went as high as 12% and above, he said.

“Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments,” Mr. Puri pointed out.

He noted that the housing market is still largely end-user driven. “So, there is no investor mindset seeking the lowest possible entry point. Genuine demand comes from an underlying aspiration for homeownership,” he observed.

Mr. Puri said the hike in repo rate was inevitable. “…but, we are now entering the red zone. Any future hikes will reflect markedly on housing sales,” he added.

Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE, said, “The RBI’s decision to raise the repo rate was a well-anticipated move, considering the steep rise in global inflation levels as well as the monetary tightening measures being adopted by central banks worldwide. We believe that this decisive action will go a long way in curbing mounting inflation levels in the medium term.”

Colliers India CEO Ramesh Nair is expecting banks to gradually pass on this rise in repo rate in the form of higher home loan rates in the coming months.

He advised homebuyers to take advantage of the prevailing home loan rates, with housing prices expected to rise.

“The twin rate hikes by the apex bank would ultimately result in home loan interest rates going up, thereby impacting buyer sentiment,” Dhruv Agarwala, CEO of Housing.com and PropTiger.com, said.

According to Knight Frank India CMD Shishir Baijal, home loans are set to get costlier.

“Rising interest rate along with elevated property construction cost and product price pressures could adversely impact the real estate buyer’s sentiment,” Mr. Baijal felt.

India Sotheby’s International Realty CEO Amit Goyal does not see any major impact on the demand side in the housing market, which continues to remain strong.

Mr. Goyal hoped inflation to cool down by the year-end, enabling the central bank to revert to a lower interest rate regime.

The increase in benchmark lending rates by 90 bps in a short span of time, coupled with the anticipation of further rise in coming months will increase the home loan EMIs significantly as compared to the previous fiscal year, Savills India CEO Anurag Mathur said.

“Thus, of all residential real estate segments, the impact on EMI dependent affordable segment will be highest. Noteworthily, the increase in cost of borrowing is expected to be tangible for developers on the supply side as well,” he added.

Kaushal Agarwal, Chairman of Mumbai-based The Guardians Real Estate Advisory, said that the RBI’s move to hike the repo rate might temporarily limit the growth momentum of the sector but the demand would continue to sustain.

Samantak Das, chief economist, and head of research and REIS, India, JLL, said, “The rise in policy rate is expected to act more as a sentiment disruptor for the home buyers, given that mortgage rates are likely to inch up.”

“Affordability remains high and buying momentum is expected to remain largely intact,” Mr. Das added.

According to Investors Clinic founder Honeyy Katiyal, the hike in interest rates will hurt the real estate sector the most. He hoped for a stable interest rate regime.

Shrey Aeren, Managing Director & Country Head of Berkshire Hathaway Home Services Orenda, said, the rate hike acts as a psychological barrier, even in the premium housing segment.

“The impact will be much more on the affordable housing side, which is primarily driven by sentiments, and with increased prices recently announced by the builders, there will be a double burden on consumers,” he added.

Shiv Parekh, Founder of hBits, said the hike in rates will impact the residential housing sector, as it will influence the purchase price immediately for buyers.

hBits facilitates fractional ownership of real estate.

The RBI move might have an immediate impact on home buying for a short-term, Ashish Narain Agarwal, Founder & CEO of PropertyPistol.com, said.