RBI raises repo rate by 50 bps to 5.9%: Buying home set to get costlier, say experts

The latest repo rate hike by the RBI has come in a bid to curb inflation. With the latest hike, the repo rate or the short-term lending rate at which banks borrow from the central bank is now close to 6 per cent.

The banks have already increased their interest rates on home loans and existing EMIs and the latest hike is likely to affect the real estate sector negatively.

The Reserve Bank of India (RBI) today raised the benchmark lending rate by 50 basis points to 5.90 per cent. This marks the fourth consecutive rate hike by the RBI after a 40 basis points increase in May and 50 basis points hike each in June and August. The latest hike has come in a bid to curb inflation. With the latest hike, the repo rate or the short-term lending rate at which banks borrow from the central bank is now close to 6 per cent.

'EMIs getting costlier, hike to negatively impact real estate sector'

The banks have already increased their interest rates on home loans and existing EMIs and the latest hike is likely to affect the real estate sector negatively, said experts. Home loan borrowers have already been bearing the brunt of increased interest rates as the EMIs have shot up by up to Rs 2000 on home loans of up to Rs 40 lakhs.

Amit Goyal, CEO, India Sotheby’s International Realty, said that the hike might impact consumption sentiments negatively ahead of the festive season.

Suren Goyal, Partner, RPS Group, said that the rate hike will have some impact on the current housing market but the overall impact will be limited.

Anuj Puri, Chairman, ANAROCK Group, said that a recent Consumer sentiment survey by the firm had highlighted that at least 61% of respondents saw high inflation as a major concern for them, seriously impacting their disposable incomes. "With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments," said Puri.

Ashwinder R Singh, CEO (Residential), Bhartiya Urban, said that the hike could have a direct impact on homebuyers in the affordable segment. "Mid-tier developers may suffer margin and cash flow pressures due to higher debt servicing requirements on their corporate debts," he said.

Rohit Gera, Managing Director, Gera Developments, said that while inflation is a concern, the decision to hike rates ought to have been deferred as raising interest rates at a time of uncertainty at the global level adds to concerns of a slowdown in the economy. "Interest rates are a sensitive issue for home buyers as rising interest rates negatively impact affordability," he said.

Saransh Trehan, managing director, Trehan Group, said that since the home loan rates are hovering between 8-9%, further tightening, if any, will start to impact the sectoring and thereby the overall economy.

Ramani Sastri - Chairman & MD, Sterling Developers, said that home loan interest rates may go up now, leading to short-term turbulence on overall housing demand. "The recent consecutive repo rate hikes had already added to buyers’ overall acquisition cost. With gradually increasing loan rates, homebuyers’ apprehension could set in quickly and they might adopt the wait-and-watch sentiment," he said.

"The increased rate hike will also impact home loan interest rates, particularly for the affordable housing sector. However, the impact of rate hikes will be minimal on serious home buyers," said Pankaj Malik, Chief Financial Officer, Fullerton India.

'EMIs to go up but outlook remains positive'

Ramesh Nair, CEO (India) and Managing Director, Market Development (Asia) of Colliers said that banks are expected to continue raising their home loan rates in the next few months. "With the festive season in the offing, developers are likely to dole out attractive schemes to attract fence sitters and first-time homebuyers. As the rate hike was on expected lines and the market has largely recovered from the pandemic lows, the home buying sentiment is not likely to be impacted significantly," said Nair.

Harsh Vardhan Patodia, President, CREDAI, said that the Real Estate sector performed well in the first half of 2022. "We expect the rise in repo rate not to impact positive consumer sentiment significantly. Developers are also running multiple festive offers which will aid overall demand. The hikes are happening to quell inflation and stay on track owing to the CPI’s rising costs,” said Patodia.

Ankit Aggarwal, MD, Devika Group, said that the Indian real estate market looks upbeat and will defy any rise in Repo rates.

Pradeep Aggarwal, Founder and Chairman, Signature Global (India) Ltd termed the hike as an accommodative move as per current micro and macroeconomic conditions globally as well as in domestic markets. "However, considering the ongoing festive season combined with high market sentiments, affordable and mid-segment housing is going to witness a huge spike in demand," he said.

Piyush Bothra, Co-founder and CFO, Square Yards claim that the revision won’t have any significant impact on consumer sentiments as the affordability of the home loan is still good.

Lincoln Bennet Rodrigues, Chairman & Founder of Goa-based Bennet and Bernard Company ruled out any significant impact saying that the affordability of the home loan is still very good.

Abhishek Kapoor, CEO, Puravankara Limited said that if the rate hike sustains, then developers will have to be careful and watch for its impact on the economy and business from next year.

Shiv Parekh, founder hBits, a fractional real estate company, said that the RBI rate hike is on the anticipated lines but the investor sentiment is still positive across the globe.