The Reserve Bank of India’s (RBI) interest rate hike by 0.25% has come on the expected lines, with the real estate industry anticipating the rise to 6.50%. Even as developers claimed that the hike will dent the demand, the fact remains that despite the RBI increasing interest rate by 2.25% to 6.25% in 2022, the year witnessed record property sales.
One of the developers shared that the RBI’s decision to hike the policy repo rate was anticipated, “factoring the rise in inflation”. He said, “The rate hike is likely to shrink overall liquidity, especially impacting the investor sentiment. There will be a short-term pause on the minds of the investors while assessing the volatility of the current market dynamics. However, they are bound to return soon once the market is stable.”
Upward growth trajectory of Indian economy
On the announcement, Dr Niranjan Hiranandani, National Vice Chairman of National Real Estate Development Council (NAREDCO) is of the view that “the Economic Survey evidently indicated the upward growth trajectory of the Indian economy, corroborated by RBI pegging the FY23-24 GDP growth rate at 6.4%”.
He said the Indian economic resilience is reflected with improved capital expenditure, enhanced capacity utilisation, improved urban and rural consumption, augmented investments and jobs creation. Dr Hiranandani added, “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.”
Pricing index of affordable housing to have detrimental impact
He said that the pricing index of 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.
'Outrageous hike needs to be warranted'
“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,” said Dr Hiranandani, adding that the impact of home loan interest rate hike will be highly deterrent in the affordable housing segment as it will impact the price sensitive homebuyers and fatigue the supply of the developers. “The luxury and mid housing segment players will remain cautious with a bit longer sales cycle,” he said.
Anurag Mathur, Chief Executive Officer of real estate consultancy Savills India said, “The important point is that the gradual and spaced-out rate-hikes have meant negligible impact on overall consumption – as the GDP growth rate has been forecast at 7.0% for Financial Year 2023.”
