RBI rate hike to hit demand for affordable housing

Hyderabad: The Reserve Bank's rate hike by 25 basis points will result in an increase in interest rates on home loans and may impact demand for affordable and lower mid-income housing segments, according to property developers and consultants. However, many industry experts said strong demand momentum in the residential segment would remain intact while some said there would not be much impact.

Real estate industry also hoped this to be the last round of hike in the repo rate. Realtors' apex body CREDAI National President Harsh Vardhan Patodia said the continuous increase in interest rates will dampen the sentiment of borrowing for individuals and businesses alike.

Dr Niranjan Hiranandani, National Vice Chairman of NAREDCO, says: "The Economic survey evidently indicated the upward growth trajectory of the economy, corroborated by RBI pegging the FY23-24 GDP growth rate at 6.4 per cent. Indian economic resilience is reflected with improved capex, enhanced capacity utilization, improved urban and rural consumption, augmented investments and jobs creation."

He adds, "The geo-political tumultuous, recession signals and weakening of western economies will reorient the growth scale towards the booming economy of India. This phenomenon will continue to draw high global traction which will fuel the demand across the real estate asset classes. The affordable housing segment will have detrimental cascading impact due to projected sticky core inflationary trend."

Though surplus liquidity will power credit growth in the real estate sector, demand economics may be challenged in the affordable house segment, which is the broad spectrum of the consumption pyramid. The outrageous hike of 250 basis point since May 2021, needs to be warranted before it turns negative for the ascending Indian economic growth curve.

Anuj Puri, Chairman of Anarock Group, said: "The 25 bps rate hike is much along the expected lines. With repo rates now at 6.5%, there could be some repercussions on housing uptake as home loan interest rates will head further north. The rates had already crept up after five consecutive rate hikes over the last one year. This will add to the financial burden on homebuyers."

Apart from home loan interest rates, property prices have also inched up in the recent past two to three quarters. Given that interest rates may breach the 9.5 per cent mark with today's hike, we may see some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious.

The affordable segment has already been in the doldrums, and adding further to the cost of acquisition obviously does not help. Indian housing market continues to be largely end-user driven - and end-users, unlike investors, focus less on ROI and more on the perceived value of homeownership. Furthermore, commodity prices are now falling and inflation is moderating.

The monetary policy impacts real estate demand in several ways. When the central bank raises interest rates, borrowing costs for buying real estate increase, which can reduce demand for housing. Also, an expansionary monetary policy, which increases the money supply, can lead to increased consumer spending and borrowing, potentially driving up demand for real estate. Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, said "RBI's decision may be one of the last in the ongoing rate hike cycle, as we have witnessed inflation moving toward a comfortable zone. We do not expect any sweeping impact on the housing sales for now, given the demand has remained upbeat and the budget announcements will spur the growth momentum"

Shishir Baijal, CMD, Knight Frank India, said: "The 25bps hike in REPO rate announced by the RBI is a well-balanced approach between handling inflation and economic growth. This was expected by the industry as inflation rate has remained above the tolerance band, though it has softened in the last few months. This hike will further help moderate inflation in the economy."

Amarendra Sahu, CEO, NestAway Technologies, said: "The RBI's hike in rates today will put pressure on lending rates. It is expected that home loan rates will touch or go beyond the 9 per cent mark soon. The transmission of the rate increase could take several weeks or months. The hike in rates may prompt a large section of homebuyers to opt for renting as EMIs will soon be on the rise."

He adds, "There will be a significant chunk of homebuyers who may also look to wait and watch before investing a big chunk. Companies extending work from home to their employees, the development of infrastructure in tier-1 and 2 cities, and the rise in the price of real estate in metropolitan cities will likely give rise to rental activities across the country." "The RBI's policy is a testament to the country's commitment to financial stability and economic growth. The focus on maintaining inflation in check while supporting the growth of the sector is commendable. The increased repo rate could impact residential sales to some extent, particularly in the affordable segment but in mid-term, it will have no impact," said Shiwang Suraj, Founder & Director of Inframantra.

"At a time when the real estate sector is showing signs of recovery and a strong bounce back driven by end-users, the marginal increase in cost of purchase would eventually average out and be overtaken by consistent rise in capital values. Luxury housing has a higher demand than other segments of the market, and the hike will have little impact on this," says Ankush Kaul, CBO of Ambience Group.

Rajeev Dhall, President - Sales, Marketing & CRM at Saya Group said, "The hike in repo rate is a reminder of the ongoing challenges faced by the real estate industry. As a developer, it is important to be mindful of the impact this will have on the borrowing costs for both customers and developers, which will ultimately influence the demand for housing." Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Ltd, said, "From a real estate standpoint, the rate hike will push the home loan interest rate further. A slowdown in the home buying sentiment may be witnessed in the upcoming quarters." Developers should seek to offer financial assistance for the homebuyers to balance the business dynamics and give a boost to the ongoing momentum, he advised.

"However the demand fundamentals remain strong as they are linked to job confidence," Dutt said. Dhruv Agarwala, Group CEO, Housing.com, said banks would pass on the 25 basis point hike to homebuyers in the form of increased home loan rates, still the borrowing rate for home buyers will continue to remain within a comfortable zone.