EMIs for home and auto loans are expected to rise as the Reserve Bank of India (RBI) raised the repo rate by 40 basis points on Wednesday in a surprise move.
For homebuyers, the key rate hike signals the impending end of the all-time low interest rate regime, which has been a key driver of home sales across the country since the start of the crisis. pandemic, says Anuj Puri, Chairman of ANAROCK Group.
Rising interest rates will ultimately affect the overall cost of acquisition for homebuyers and could dampen residential sales to some degree, Puri says. “Rising interest rates and inflationary trends in basic raw materials in construction, including cement, steel, labor cost, etc. will add to the burden on the residential sector, which will s fared considerably well in the prior quarter – Q1 2022,” he says.
Puri, however, adds that this increase in the repo rate was expected as inflation has definitely entered the threatening zone.
While announcing the rise in repo rates, RBI Governor Shaktikanta Das cited geopolitical tensions due to the Russian-Ukrainian war as one of the reasons for the alarming levels of inflation. “Inflation-sensitive products relevant to India, such as edible oils, are facing shortages due to the conflict in Europe and export bans by major producers. Soaring fertilizer prices and other input costs have a direct impact on food prices in India,” Das said.
Rising interest rates amid rising input costs are expected to impact real estate, according to Gulam Zia, senior managing director at Knight Frank India. “The sector has largely benefited from low interest rates over the past two years. This rise in policy rates will translate into higher EMIs for home loans.”
Agree with Ramani Sastri, President and CEO of Sterling Developers. “The increase in the repo rate will likely impact the industry as residential demand has been positively revived in the post-pandemic context and needs to be encouraged. It also goes without saying that the eternal hope of the real estate industry is set on lower interest rates as it improves affordability and also provides fuel for the growth of the economy as well as the real estate sector, which is allied with several other industries,” Sastri said.
Zia, however, expects an improvement in homebuyer sentiment, a preference for home ownership and strong wage growth to support the housing market. “The monetary policy stance is still accommodative and with the pandemic and economic growth receding, we expect consumer demand to remain buoyant in the short term,” he adds.
Rising rates were inevitable, with central banks around the world resorting to rate hikes to maintain inflationary pressure created due to various global factors, says Shrey Aeren, MD and country head of Berkshire Hathaway Home Services Orenda.
“Delhi/NCR builders have recently hiked property rates by nearly 10% due to an increase in input costs. This rate hike will have limited impact on residential sales as the housing market has softened. already acclimated to central bank expectations of this rate hike,” Aeren says. “We also anticipate that several banks may absorb some or all of the rate hike to keep mortgage rates at attractive levels.”
Industry lobby PHD Chamber of Commerce and Industry called the rate hike “disappointing”. The move will hurt consumer and business sentiment as the economy is still recovering from the pandemic, said Pradeep Multani, president of the PHD Chamber of Commerce and Industry.
The body urged the RBI to remain “accommodative” and bring the repo rate down to the 4% level. “Any increase in the interest rate will have an additional impact on the costs of doing business, which are already high, namely the high cost of raw materials,” adds Multani.