RBI raises repo rates again; Here's what it means for home buyers

RBI raises repo rates again; Here's what it means for home buyers

Things started to change in May 2022 when the Reserve Bank of India Monetary Policy Committee (MPC) announced the first repo rate hike

Sheetal Shelar PatilUpdated: Thursday, December 15, 2022, 10:56 PM IST
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If one tries to identify the one major change that has been witnessed in the residential real estate segment during 2022, it is the fact that the Reserve Bank of India has been raising the repo rates on a relatively regular basis. Comparatively, such announcements were nowhere on the horizon a year ago.

Things started to change in May 2022 when the Reserve Bank of India Monetary Policy Committee (MPC) announced the first repo rate hike. Since then, with tackling inflation being the deciding factor, the increases have been taking place consistently.

So, is this cause for concern? Have the real estate markets been affected? Have home loan rates been influenced to such an extent that home seekers would need to ponder over a purchase decision?

Anurag Mathur, CEO, Savills India, opined that “a marginal decrease in domestic inflation in recent months has prompted the RBI to opt for a moderate increase in benchmark lending rates. Although the current 35 bps hike takes the overall increase to 225 bps in FY23, it is worthwhile to note that the increments have been gradual and relatively well spaced. The central bank still intends to bring down inflation within tolerance levels and indicated a continued withdrawal of accommodation.”

According to him, while the MPC decision was along the anticipated lines of industry experts, the central bank envisaged a 6.8% GDP growth in FY23. Inflation, meanwhile is projected to come down within tolerance levels by the last quarter of the current fiscal year.

“Remarkably, there has been no visible impact of repo rate increases on housing sales; the demand side has remained largely undeterred by such rate hikes. Although the financing cost is likely to increase in future, inflation within controllable levels will mean stabilization in input costs of key construction materials, leading to correction in overall construction costs. The nuanced approach of RBI has been instrumental in finely balancing inflation and growth prospects of all sectors including real estate,” he emphasised.

Nidhi Aggarwal, Founder, SpaceMantra, concurred, stating that “The realty sector in India will remain unperturbed by the current surge in repo rates. India continues to be one of the fastest-growing emerging economies in the world with an estimated rate of growth of 7% in the current fiscal. This further indicates that Indian markets are largely insulated from the muted global economic outlook. Although the growth will correct in the next fiscal, it will still be in the comfortable range of 6- 6.5%.”

She pointed out that Indian real estate will continue to be one of the key growth enablers and will play a pivotal role in employment generation in the country. “The growth in the realty market won’t just be limited to metros but also to tier 2 and 3 cities and smaller townships reflecting a multifaceted nature of expansion, which is a positive sign in the longer run.”

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