Affordable segment of real estate to face heat of repo rate hike

There is no respite for home loan borrowers as the Reserve Bank of India (RBI) in its monetary policy meeting held on August 5, decided to increase the repo rate again by 50 bps to 5.4 percent, the pre-Covid level. This was the third hike in the last two months to tackle the rising inflation.

The rise in repo rate will push banks to increase the interest rate on different loans including housing loans. Whether new or existing, all borrowers (except fixed rate) will have to pay increased EMIs soon.

Experts from the real estate sector say that this will impact the affordable segment where homebuyers are mostly borrowers and have to stretch their budget while buying houses. Haresh Chheda, President of Builders Association of Navi Mumbai (BANM) says that the hike was expected and in days to come, we will see more hikes. “The hike in rate will dent the mood of home buyers and demand will shrink,” said Chheda, adding that even developers will have to pay higher interest on loans. “As the construction costs have already risen, this will be an additional burden,” he said. However, he added that home buyers should not wait and go ahead with a decision with a fixed rate on loan to buy a house as there is no chance of interest rate coming down in the near future.

Anuj Puri, Chairman – ANAROCK Group said, “This whammy comes along with the inflationary trends of primary raw materials, including cement, steel, labour, etc., that have recently led to a rise in property prices. Together, these factors – rising home loan rates and construction costs – will impact residential sales that did reasonably well in the first half of 2022. As per ANAROCK Research, approx. 1.85 lakh units were sold in H1 2022 across the top 7 cities.”

Even further increase rate is expected, says Sanjay Dutt, MD and CEO of Tata Realty. “We can expect a rate hike up to 5.75 to 6% by the end of the 2022 calendar year,” said Dutt.

Javed Shaikh, a home loan borrower from Vashi says that he is already paying Rs 31,000 EMI and any additional amount will impact his household budget and the education of his children. “We are already under the high inflation, rise in EMI will make it difficult to meet household needs,” said Shaikh.

On the contrary, Dr Niranjan Hiranandani -National Vice Chairman- Naredco and MD of Hiranandani Group real estate continues to be a good bet for investment with sustainable consumption demand at play even after the interest rate cycle wanes off.

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