Hike in repo rate: Home buyers’ sentiments to impact ahead of festive season

The repo rate hike came against the backdrop of the registration of properties in Mumbai witnessed a rise of 15% to 11,339 units in July contributing over Rs 829 crore to the state revenues.

Sanjay JogUpdated: Friday, August 05, 2022, 04:14 PM IST
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The Realty sector, which was on a recovery path with the rising housing sales in the low-interest rate regime, could see some short-term disruption to the sales growth momentum with the RBI’s move to increase the repo rate to 5.40%. The realty players admit there will be a deteriorate affordability, which may impact the sentiments of home buyers ahead of the festive season. However, they argue that the medium to long-term growth prospects remains intact. The repo rate hike came against the backdrop of the registration of properties in Mumbai witnessed a rise of 15% to 11,339 units in July contributing over Rs 829 crore to the state revenues.

Knight Frank India CMD Shishir Baijal said that with the cumulative rate hike until today, assuming complete transmission, prospective home buyers’ affordability shrinks by around 11% (from an ability to purchase the house of Rs 1 crore value shrinking to Rs 89 lakh now. ‘’Developers are expected to undertake mitigating measures to soften the blow on homebuyer affordability. The increase of interest rates and the subsequent transmission of these into the home loan rates, while has the capability of impacting demand, we hope the latent demand for housing will soften the impact of the latest change in the repo rates,’’ he noted.

The Naredco national vice chairman Niranjan Hiranandani asserted that short-term interest rate spike will certainly hurt the homebuyers’ sentiments as the home loan borrowing is at a flexible rate but it averages out the cost positively in the long term. ‘’Developers are conscious about the inflationary pressure building up with the spiraling economic discord and will chalk out sweeteners on the back of festive tailwinds,’’ he said.

The CREDAI-MCHI treasurer Pritam Chivkula said the sharp acceleration of rates consecutively for the third time in a short period may have a short-term effect on the sentiment of homebuyers as low-interest rates have been the biggest factor in the resurgence of real estate demand in the last two years. ‘’We hope that the State Government will step in to lighten the homebuyer’s load by reducing stamp duty ahead of the festive season,’’ he added.

Further, ANAROCK CMD Anuj Puri observed that rising home loan rates, construction costs, and inflationary trends in primary raw materials will impact residential sales that did reasonably well in the first half of 2022. ‘’The hike by 50 bps is definitely on the higher side and home loan lending rates will now edge further into the red zone,’’ he said.

According to Housing.com group CEO Dhruv Agarwala, the new rate, which is 5.40%, will ultimately impact the cost of borrowing for India’s homebuyers. ‘’However, it is also pertinent to note that past rate hikes and the consequent increase in home loan rates have so far not had any discernible negative impact on the burgeoning demand for homes. We believe that positive buyer sentiment coupled with the renewed interest of investors in residential real estate will cushion some of the adverse impacts of the rate hike,’’ he said.

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