Towering Crisis, Low Interest Rate Home Run Ends

Towering Crisis, Low Interest Rate Home Run Ends

Repo rate cut will lead to interest rate hikes

Coupled with input cost rise, interest hikes will push buyers back, realtors said

MUMBAI, May 4 (The CONNECT) – The real estate industry, just-about recovering from the pandemic impact, is shell shocked by the RBI’s decision to increase the repo rate by 40 basis points which developers said will lead to hike in home loan rates.

Describing the RBI’s decision to increase the repo rates by 40 bps, as an expected one, ANAROCK chairman Anuj Puri said, unfortunately, for home buyers, this hike signals an imminent end to the all-time low interest regime, which has been one of the major drivers behind home sales across the country since the pandemic began.

Moreover, rising interest rates and inflationary trends in basic raw materials in construction including cement, steel, labour cost etc. will add to the burden of the residential sector, which did significantly well in the previous quarter – Q1 2022. 

This rise in interest rates will ultimately impact overall acquisition cost for homebuyers - and may dampen residential sales to some extent. The possibility of overall price hike was also highlighted in ANAROCK’s recent consumer survey wherein at least 56% of the respondents felt that property prices will increase in 2022.

A price rise of >10% will have a ‘high impact’ on residential sales and <10% rise will have a ‘moderate-to-low impact’ on sales. The current sales velocity will thus be impacted by rise of >10% in overall acquisition costs.

Kaushal Agarwal - Chairman, The Guardians Real Estate Advisory, said the decision also ends the all-time low home loan interest regime, which boosted the housing demand and helped the economy to get back to the pre-COVID levels. Thus far, the RBI's approach towards tackling the situation created by the pandemic and steps taken to help revive the economy will go down in history as being extremely pragmatic. These steps have enabled a robust recovery in the real estate sector. The latest move by the RBI along with the rise in input cost on construction might temporarily limit the growth momentum of the sector.


Interest rates will harden: Murali Ramakrishnan, MD &CEO, South Indian Bank on RBI Rate hike, “40 bps is only the reversal of the cut which was done by central bank 2 years back. CRR increase by 0.5% is the measure to suck excess liquidity resulting in 87,000 cr going out of liquidity. Both these measured were expected and RBi had chosen to do now given the inflationary pressures. Lending rate ofcourse will take into account the CRR hike as 4.5% will have to be set aside as against 4%. Both lending and deposit rates are likely to increase.   This may be the beginning of interest rate hardening scenario”


Pritam Chivukula - Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI MCHI, said the RBI decision has come as a sudden surprise to the real estate industry.  In keeping with the stance of withdrawal of accommodation, the sharp acceleration of rates will affect the homebuyers with concerns of EMI on home loans. The State Government which is the largest beneficiary of housing demand should come forward to support the home buyers by reducing stamp duty rate to 3%.''

Shraddha Kedia-Agarwal, Director, Transcon Developers, however. Felt RBI's decision to hike the policy rates was anticipated on the back of very high inflation. But, she said, “we have already started seeing a vertical movement in the home prices and the decision will further put a dent on the homebuyer's sentiments impacting the overall demand."

Dr. Sachin Chopda, Managing Director, Pushpam Group, too said the move is a shocker to the entire real estate industry. It will impact investor decisions directly as the home loan rates may increase anytime soon.

Bhushan Nemlekar, Director, Sumit Woods Limited, said ''It is not very surprising that the RBI has increased the repo rates by 40 basis points keeping the inflation of our country as a major concern in mind. With the increasing prices of property, this decision is a huge setback for the real estate industry disrupting the ongoing growth momentum in the sector.''

Jitesh Lalwani - President, Homesync Real Estate Advisory, RBI’s surprise move will create a hitch for the realty industry soon. The banks will anytime start increasing the interest rates on home loans that shall impact the homebuying decision going forward.

He appealed to the government to take steps to support the realty sector and in favour of homebuyers.

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