Impact of rising interest rates: Rising repo rate to hit affordable housing the most, builders say

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Rising lending rates due to rising repo rates will make home loans more expensive compared to the prior year and will also impact home buying sentiment.

RBI, RBI policy, home loan interest rates, rising cost of borrowing, cost of construction, pressure on end users, developers, housing demand, home lending, buyer sentiment, home sales

The second scheduled MPC meeting of the fiscal year raised benchmark lending rates by 50 basis points on Wednesday, bringing the cumulative increase to 90 basis points in the first months of FY23.

Industry experts said Brent crude prices surging above $120 a barrel and domestic retail inflation at an 8-year high in April played a central role in recalibrating growth prospects. With geopolitical tensions driving the globalization of inflation, the World Bank and RBI have revised India’s GDP growth rate to 7.5% and 7.2%, respectively, for the current fiscal year.

However, the increase in lending rates due to rising repo rates will make home loans more expensive compared to the prior year and will also impact home buying sentiment.

“Major private and public sector banks have already passed on the previous repo rate hike by raising mortgage interest rates by 30 to 40 basis points across all loan categories. The increase in benchmark lending rates by 90 basis points in a short period, coupled with the anticipation of a further rise in the coming months, will significantly increase the EMI of real estate loans compared to the previous year. Thus, of all segments of residential real estate, the impact on the affordable segment dependent on EMI will be the highest. It should be noted that the increased cost of borrowing should also be tangible for developers on the supply side,” said Anurag Mathur, CEO of Savills India.

Amit Modi, Chairman of CREDAI Western UP, said: “Increasing the repo rate by 50 basis points will hamper buyer sentiment, especially first-time home buyers who are heavily reliant on home loans. This will be a brake on the growth trajectory of post-Covid revived sales. Millions of home buyers will be sidelined and alienated from housing markets after the rise. This will slow down the pace of sales which has been increasing lately. »

Developers also felt that home sales could be affected during the holiday season.

“The RBI’s decision to raise the global repo rate by 50 basis points to 4.90% was widely expected. The decision is made with rising inflation in mind. It will have a vital role in the growth of the real estate sector and the overall contribution to the Indian economy.Nevertheless, this may bring a pause in the rise in property sales, when buyers are likely to invest in their dream home ahead of the festive season said Santosh Agarwal, CFO and Executive Director of Alpha Corp.

Some builders, however, were also of the view that even though home loans would become expensive, the RBI’s decision would tame inflation, which would ultimately benefit the property sector.

Manoj Gaur, CMD, Gaurs Group & President-CREDAI NCR, said, “The RBI has been a good balance. While he did not give in to the hawkish attitude expected by some observers, he at the same time signaled his desire to control inflation. We understand that the repo rate hike of 50 bps will impact consumer loan interest rates and make home lending more expensive just as the real estate sector is emerging from the throes of the pandemic and affecting sales at short term. However, keeping inflation in check will ultimately benefit the real estate sector which is mired in high input costs.

“The hike in the repo rate by the RBI is in line with expectations. This time the objective before the RBI was to contain inflation through monetary control measures. This move will definitely help the country and benefit the struggling real estate sector already against the high costs of inputs due to various external factors and the consequent increase in fuel costs. Although this increase will have an impact on the purchasing power of consumers, we believe that the impact will be taken into account observed Prateek Mittal, Executive Director, Sushma Group.

The recent surge in home sales seen post-pandemic is also believed to be supportive of the property market.

Vinay Wadhwa, Managing Director – Sales, Vatika Limited, said: “The inflation rate is currently at an all-time high. With the increase in the cost of building materials, there is also pressure on prices. The decision to raise the repo rate will be a curse on the real estate market. Home loans under the RLLR will now cost more and there will also be an increase in other loan rates and EMIs. Not to mention that banks now have a higher marginal cost of lending rate since the start of this fiscal year. However, despite all expectations, we remain hopeful as the real estate sector has seen pent up demand for property purchases following the Covid-19 pandemic.

Pradeep Aggarwal, Chairman of Signature Global (India) Ltd, said, “The RBI was left with no choice but to contain inflation through monetary control measures. This may influence real estate slightly, but it will not impact consumer confidence or demand. At the same time, increasing the limit of 100% of individual lending by the apex bank for cooperative banks would surely spread positive communication between each stakeholder. »

“Increasing the repo rate by 50 basis points will make no difference in the market, at least in the segment we operate in. Demand and homebuyer sentiment are in our favor and, at the time Currently, it is beyond such considerations.An interest rate increase will make no difference, especially in the “very affordable segment”, said Vikas Garg, Deputy Managing Director, MRG World.

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