Mumbai: The Reserve Bank of India (RBI) has increased the repo rate upwards by 25 bps to 5.50%, while simultaneously changing the stance from “neutral” to “calibrated tightening”, signalling strict vigilance against inflationary pressures stemming from external volatilities and elevated crude prices. The Central Bank also noted that global headwinds could potentially become stronger, given recent re-escalation in West-Asia crisis and cautioned against the likelihood of de-acceleration in economic growth across countries
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This will increase the borrowing costs and can affect the near-term demand when it comes to real estate.
"Although the increase in benchmark lending rate may soften near-term demand, the sector’s strong underlying fundamentals should help cushion the impact across most asset classes in India. A 40-bps upward revision in FY 27 GDP growth to 7.1% also indicates that India’s consumption driven economy should continue to be resilient benefiting from its demographic profile," said Vimal Nadar, National Director & Head of Research, Colliers India.
He added that in case of residential segment, rise in borrowing costs is likely to drive homebuyers to adopt a nuanced & selective approach in their purchase decisions, particularly in price-sensitive categories. In this scenario, developers could absorb most of this financing pressure and provide comfort to homebuyers through festive discounts and innovative pricing plans, to boost sales.
Shrinivas Rao, FRICS, CEO, Vestian said, "The RBI’s 25-basis-point repo rate hike and a shift in stance from neutral to calibrated tightening signals a more restrictive monetary policy, reducing the likelihood of rate cuts in the near term. Higher mortgage rates could increase borrowing costs for homebuyers and raise the cost of capital for real estate developers. Developers may need to reassess their financing strategies and strengthen balance sheets to manage potential margin pressures and dampened demand, particularly if further rate hikes follow."
While Piyush Bothra, Co-founder & CFO, Square Yards opined that the 25-basis-point repo rate hike is a calibrated and prudent step by the RBI, particularly in the current inflationary environment. While higher borrowing costs may create some near-term pressure on home-loan affordability, the move also reinforces macroeconomic stability, a critical factor for the long-term health of the sector.
"The Indian residential market today is much more resilient than it was during earlier rate cycles. Demand is being supported by rising household incomes, urbanisation, improving infrastructure and a growing preference for quality housing. A 25-bps adjustment, therefore, is unlikely to fundamentally alter the underlying housing story, particularly for mid-income, premium and well-located projects," Bothra added.
Meanwhile, Akhil Saraf, Founder & CEO, Reloy said that with global bond markets under severe pressure, India’s relative stability and a measured repo rate hike are reassuring. "For real estate, this is constructive. While borrowing costs may rise marginally, greater macro stability reduces uncertainty and gives homebuyers more confidence to make long-term purchase decisions," he added.
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