Home / News / India /  Will RBI 35 bps rate hike hit real estate sector? What experts say
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The Reserve Bank of India monetary policy committee (MPC), which determines interest rates, has raised policy repo rate by 35 basis points (bps) to 6.25 per cent with immediate effect. This is the fifth consecutive hike by the central bank. Repo rate is the rate at which the RBI lends money to all commercial banks.

The continuous rate hikes may lead to short-term turbulence in the overall housing demand when buyers are optimistic of making a home purchase decision and this may add to buyers’ overall acquisition cost. The real estate sector had started seeing gradual recovery across key property markets, driven primarily by end-users, however, the repeated rate hikes may impact the interest rate-sensitive sector.

What experts say on today's RBI repo rate hike

Amarendra Sahu Founder & CEO, at NestAway Technologies

The RBI hiking rates will make home loans dearer, thereby push prospective homebuyers to opt for rental. The repo rate now is near 4.5 year high and likely to stay higher for an extended period of time. Mortgage rates are now again at or even higher than they were prior to COVID. This will probably give the rental market more traction. Renting will become significantly more affordable due to increasing home-buying costs and interest rates. Home rentals have little correlation to home loan rates. We expect the Central Bank to stay on a long pause before they start cutting rates likely in the later part of CY23.

Ramani Sastri - Chairman & MD, Sterling Developers

Low interest rates have been the biggest factor in the resurgence of real estate demand in the last few years and hence the rate hike would mean a hurdle in affordability. However, there is a positive sentiment, as affordability and disposable incomes of new-age homebuyers are much better than in the past. Despite the odds, we’re still hopeful as there is significant pent-up demand from a very large population base and first-time home buyers. Real estate is definitely among the best instruments to invest in and looking ahead, we do believe that markets will see sustained growth over the next few years.

Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company

We don’t see significant impact on the luxury housing segments due to the current increase in repo rate hike as the demand of home buyers in this segment is beyond these considerations. While there has been a moderate hike in loan rates, the affordability of the home loan is still very good. We believe the positive sentiment will continue in the luxury segment driven by changes in buying patterns post the pandemic. However, a reduction in the key rates going forward would be widely celebrated as low interest rates have been a crucial factor in the revival of overall real estate demand and improvement in the liquidity situation which is vital for the sector.

Anuj Puri, Chairman – ANAROCK Group

The 35 BPS rate hike by the RBI - the fifth consecutive rate hike this year - comes as no surprise. With repo rates now at 6.25%, there may be some repercussions on housing uptake. This hike will undoubtedly push up home loan interest rates, which had already crept up after four consecutive rate hikes this year. However, as long as interest rates remain in single digits (mainly within 9.5%) the impact on housing will at best be moderate. If they breach this point, we will see some real pressure on residential sales volumes in the months to come – especially in the affordable and lower mid-range housing segments.

Cyrus Mody, Managing Partner, Viceroy Properties

The RBI hiking rates by 35 bps was expected. A broader softness in inflation and steady economic growth is the key reason behind the RBI softening its rate hike this time, as compared to the previous hikes of 50 and 75 points. Having said that, we believe the repo rates have peaked with the current hike, and that the central bank is likely to go on a long pause and monitor macroeconomic trends before deciding its next course of action. This may create room for a potential possibility of the RBI slashing rates by the end of the next CY.

Ram Raheja, Managing Director at S Raheja Realty

The decision on the 35% rate hike by the RBI may result in withdrawal of accommodation but will keep inflation within target. India's economic health remains robust, despite global gloom. Urban consumption in the country is on the rise, indicating positive sentiment. Residential real estate will witness a further impetus due to overall uncertainty leading people to return to focus on basic requirements like spacious living spaces. Also, the strong fundamentals for housing demand will keep the momentum upwards for realty sales. Investors will be closely watching the geopolitical conditions to further estimate growth and evaluate investment avenues.

 

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