Hyderabad: The real estate industry, which was thriving on low-interest rate home loans, may have taken a slight hit after the Reserve Bank of India decided to hike the repo rate by 40 basis points. Though the full impact of the rate hike can be assessed only after a few months, the initial reaction is that it[…]
Published Date – 6 May 2022, 11:04 PM
Hyderabad: The real estate industry, which was thriving on low-interest rate home loans, may take a slight hit after the Reserve Bank of India decided to hike the repo rate by 40 basis points. While the full impact of the rate hike can be gauged only after a few months, the initial reaction is that it may impact the buying decisions of new home buyers and, in turn, may have a marginal impact on home sales as well.
On Wednesday, the RBI raised the benchmark lending rate to 4.40% after an unscheduled MPC meeting to control inflation which has remained above the 6% target for the past three months. This is the first rate hike since August 2018 and the first instance of the monetary policy committee making an unscheduled increase in the repo rate (the rate at which banks borrow money from the RBI).
In response to the interest rate hike, several private and public sector banks also announced their decision to raise interest rates. Private sector lender ICICI Bank revised its external benchmark lending rate (EBLR) to 8.10%, and state-owned Bank of Baroda raised the rate to 6.9% with immediate effect. Two other public sector banks – Bank of India and Central Bank of India – also announced interest rate hikes. And if reports are to be believed, several other banks may do the same.
Impact on realty
While some experts say the RBI move signals the beginning of the end for low-interest home loans, others say it will only impact new homebuyers and not those who have already taken the decision.
GV Rao, president of Telangana Developers Association, believes that this will have no impact on genuine buyers as this hike will only increase the number of EMIs. “Though full details about the rate hike are awaited, I believe this hike may only increase one or two EMIs. This is not a matter of much concern for genuine home buyers. However, any rate hike will impact sales and new home buyers may go into wait-and-watch mode,” he says.
Anuj Puri, Chairman, Anarock Group, says, “Unfortunately, for homebuyers, this hike marks the end of the all-time low interest rate regime, which has been one of the key drivers behind home sales across the country since the pandemic began. In addition, rising interest rates and inflationary trends in basic raw materials in construction including cement, steel, labour costs, etc. will add to the burden on the residential sector, which had performed quite well in the previous quarter – Q1 2022.”
Puri said the rise in interest rates will ultimately impact the overall acquisition cost for homebuyers – and may dampen residential sales to some extent.
Ramani Shastri, chairman and MD, Sterling Developers, says, “An increase in the repo rate is likely to impact the industry as residential demand has recovered positively post the pandemic and needs a boost. The perennial hope of the real estate industry rests on lower interest rates as it improves affordability and provides the much-needed fuel for the growth of the real estate sector as well as the economy, which is linked to several other industries.”
Echoing Rao’s views about minimal impact on property sales and prices, real estate sector analyst Kalisetty Naidu says there will definitely be a rise in home sales.
Naidu says, “Old customers will have to reschedule their EMIs as their number may increase. However, new loans will not see much impact right now. With material costs already rising and property prices rising by 4 to 6% in the last 3-4 months, this increase could be one of the many factors that could contribute to another rise in prices in the coming months.”