The RBI decision to increase the repo rate has evoked reaction from market experts.
Samantak Das, Chief Economist and Head of research and REIS, JLL, India, said the decision by RBI to increase the repo rate by 50 bps for the fourth consecutive time to 5.90 % is along the expected lines as the central bank aims to rein in inflation, maintain global interest rates parity and ensure the stability of the currency. Retail inflation has been hovering above RBI’s upper target of 6% since February 2022 with the recent August number at 7%. The rate hike is intended to arrest the persistent rise in inflation which is impacting economic growth. The Fed interest rate hike and its outlook have also prompted RBI to take this step. The GDP outlook has been marginally lowered to 7.0% for the financial year 2022-23 from an earlier forecast of 7.2%.
The hike does not augur well for the real estate sector, especially the residential segment as it will result in increased mortgage rates. The transmission of change in repo rate is based on an individual bank’s decision. Since April 2022, RBI increased the repo rate by 140 bps, while home loan rates moved up by an average of 80 bps - more than 50% has been transmitted to date. Taking a cue from the previous transmission, we expect the home loan interest rates to go up in the range of 25-30 bps. However, the interest rate after this hike would be still below what the homebuyers had to pay 8 to 9 years back- more than 10%. It is likely that banks might also delay the transmission, taking into account higher housing demand during the festive season. With today’s hike in repo rate, the revised home loan EMI would increase by an average of 8-9% as compared to 6 months back. The continuous rise in home loan EMI is hence, expected to act as a sentiment disruptor. We believe that home loan interest rates inching towards 9% and above may result in moderation of housing sales growth in the medium term, especially post the current festive season.”
According to Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers, “RBI hiked the repo rate as the government remains committed to tame inflationary pressures amidst global headwinds. However, domestic economic activities remain promising, thus providing the central bank with the required elbowroom to continue withdrawing its accommodative stance. Resultantly, RBI slightly moderated its growth target to 7% for FY 2022-23. In response, 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.
Amit Goyal, CEO, India Sotheby’s International Realty, said in the last 5 months, RBI increased the repo rate by 190 basis points, from 4% In April to 5.90% now. The RBI has taken into consideration the broader economic and liquidity scenario and needs to curb the inflation further. Falling rupee is also a major concern amidst global uncertainty, besides high fuel prices. It is important to understand that policy rates and regulation will decide the long-term growth of the economy and the real estate sector. The hike might impact consumption sentiments negatively ahead of the festive season. However, from a home buyers’ perspective, home loan rates will still remain below 9% per annum and they must utilise this opportunity and make their purchases by cashing in on offers and festive discounts in the market.
According to Piyush Bothra, Co-founder and CFO, Square Yards, the RBI has taken another aggressive stance by recalibrating the repo rates for the fourth time this year to further rein in the inflation and restore the economic health of the country. In real estate parlance, this revision won’t have any significant impact on consumer sentiments which is buoyant at present. In spite of the hike, the affordability of the home loan is still good, and robust housing demand and growing income stability will continue to keep the real estate sector in an advantageous position. Besides, with the festive season knocking on the door, the residential sector is expected to put up a good show, as the market is overflowing with new buyers. However, we may see an exercise of caution from second and upgrade home buyers.
Saransh Trehan, managing director, Trehan Group, said this is the fourth consecutive rate hike by the apex bank in the last five months. However, the demand in the housing market continues to remain robust despite subsequent rate hikes, in fact in many cities it is improving. So, we don’t see any major impact in the scenario even after today’s RBI decision. However, with home rates hovering between 8-9%, further tightening, if any, will start to impact the sectoring and thereby the overall economy.
Published - October 14, 2022 03:28 pm IST
