RBI Monetary Policy 2023: Realty Sector Expects Pressure on Sales Volumes in Affordable, Lower Mid-Range Housing Segments

RBI`s monetary policy committee voted by 4:2 in the meeting on February 6-8 to hike the repo rate by 25 bps to 6.50% to rein inflation to the target level.

New Delhi: RBI announced on Wednesday to increase the repo rate by 25 bps to 6.50% in order to rein the high inflation within the target limit. The decision was taken after the first Monetary Policy Committee meeting of 2023 voted in favour by 4:2 to hike the repo rate and to focus on withdrawing of accommodation. Changing in the key lending rate has a ripple effect as many sectors will be impacted simultaneously. It will eventually make the EMIs on loans costlier as the repo rate is directly proportional. Realty sector is one such that can seen major impact after repo rate hike by RBI with immediate effect as it expects pressure on sales volumes in affordable and lower mid-range housing segements.

Expecting 2-4% hike in EMIs on loans after the hike of 25 bps in repo rate, V Swaminathan, executive chairman, Andromeda Sales and Apnapaisa.com, explained, “Repo rates is directly linked to loan rates offered by lenders so an increase in the repo rate will increase the borrowing and vice-versa”. He further said “borrowers will either have to shell out extra money to replay their loans or will have to extend the loan tenure”.

Explaining the impact of 25 bps repo rate hike on the housing sector, Anuj Puri, the Chairman of ANAROCK Group, said, “The 25 bps rate hike is much along the expected lines. With repo rates now at 6.5%, there could be some repercussions on housing uptake as home loan interest rates will head further north. The rates had already crept up after five consecutive rate hikes over the last one year. This will add to the financial burden on homebuyers as apart from home loan interest rates, property prices have also inched up in the recent past two to three quarters.”  

He further added that, “Given that interest rates may breach the 9.5% mark with today’s hike, we may see some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious. The affordable segment has already been in the doldrums, and adding further to the cost of acquisition obviously does not help.”

Expecting to see strong overall homebuying sentiment for residential properties, Piyush Bothra, co-founder and CFO, Square Yards, said, “The Reserve Bank of India’s decision to hike the repo rate by only 25bps is within the expected range. While this hike would make the home loans more expensive, but it still remains lower than the historical home loan rates.”

While Pradeep Aggarwal, founder and chairman, Signature Global (India) ltd is confident that “residential sales would increase at least 20 % in this quarter and at least 30 % on YOY basis overall”, considering the growth-driven fiscal budget announced by the Government earlier this month. Moreover, he said, “the affordable and mid segment housing is going to witness a significant upsurge in demand in the coming months”.