Constituent policy

RBI rate hike: RBI policy rate hike expected to hit housing demand : real estate industry

The Reserve Bank’s decision to raise key rates will impact the growth of the real estate sector and could affect housing demand, according to industry players. The Reserve Bank of India (RBI) on Wednesday raised the benchmark lending rate by 40 basis points (bps) to 4.40% to contain inflation. It also increased the amount of deposits that banks are required to maintain as a cash reserve by 50 basis points to 4.5% to suck up Rs 87,000 crore of liquidity from the banking system.

Commenting on the policy, chairman of industry body CREDAI, Harsh Vardhan Patodia, said: “Low repo rates have given the real estate sector a boost during the pandemic. RBI’s increase in repo rate is a surprise for the real estate sector given the inflationary trends.

“We are seeing growth trends in the real estate sector and developers have largely remained resilient amid the challenges of the pandemic. While this escalation will impact consumer purchasing power, we believe the impact will be taken into account by home buyers,” he added.

Boman Irani, Chairman of CREDAI-MCHI, said that this sudden increase in the repo rate coupled with inflation will indeed impact the growth of the industry.

“Given the escalation and surge in commodity prices, buyers may become reluctant to borrow from banks at a higher interest rate. Although RBI has kept the benchmark lending rate at a record for a long time, CREDAI-MCHI asks not to increase the rate further and to support the growth of industries,” he added.

Anarock Chairman Anuj Puri said the rise signals the imminent 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 pandemic.

“In addition, rising interest rates and inflationary trends in basic raw materials in construction, including cement, steel, labor cost, etc., will increase the burden on the sector. residential, which performed considerably well in the prior quarter – Q1 2022,” Puri added.

He further stated that this rise in interest rates will ultimately impact the overall cost of acquisition for homebuyers and may dampen residential sales to some extent.

Gulam Zia, senior executive director of Knight Frank India, said that higher policy rates will result in higher EMIs for home loans. “However, we believe improving homebuyer attitudes, home ownership preference and strong wage growth will continue to support the housing market.”

Amit Goyal, CEO of India Sotheby’s International Realty, said this signals an end to the historically low interest rate regime as lending institutions will soon follow with increased rates on deposits and loans.

“However, we don’t expect home loan rates to rise more than 0.5-1% this year. These are still pretty low interest rates and home buyers should take advantage of that,” Goyal added.

Vikas Wadhawan, group chief financial officer, Housing.com, PropTiger.com and Makaan.com, said the property sector is well placed to handle any upside and frankly expects it to also tackle the strong inflation.

“However, there will be rising property prices associated with soaring input costs, even if market sentiments, overall, will be stable,” he added.

There will be an overall increase in property prices, but it will soon be balanced as the market is strong and resilient, said Nayan Raheja of Raheja Developers.

Trehan Group chief executive Saransh Trehan said it would slightly increase the cost of borrowing for home loan seekers.

“As the cost of a home loan is only one element for a home buyer, the RBI’s decision is unlikely to have a major impact on the property sector,” he added.

Shraddha Kedia-Agarwal, director of Transcon Developers, said the RBI’s decision will further hurt homebuyers’ sentiments, which will impact overall demand.

This policy rate hike is not welcome and will have a negative impact as mortgage rates will rise immediately, said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

Shiv Parekh, Founder of hBits, said, “Commercial real estate will benefit from rising rates over the long term. Class A income-generating properties, in particular, will have more demand than other asset classes. , real estate and gold were used as hedges against inflation.”