Home lending will rise, but buyer sentiment unlikely to be significantly affected: consultants

As widely expected, the Reserve Bank of India (RBI) raised the repo rate for the fourth consecutive time by another 50 basis points to 5.9% at its bi-monthly policy meeting on Friday – a move that will make all types loans, including home loans, more expensive today.

Commenting on the rate hike, real estate analysts said the move could have some impact on residential sales in the upcoming festive quarter, particularly in the affordable and mid-range housing segments.

Anuj Puri, Chairman of ANAROCK Group, said the 50 basis point rise in the RBI was expected, especially as no global economy hinted at any moderation. Inflation continues to ravage almost every economy, and India is no exception. The recent ANAROCK consumer sentiment survey also highlighted that at least 61% of respondents considered high inflation to be a major concern for them, severely affecting their disposable income.

“With this rise in repo rates, home loans will soon become more expensive. This could impact residential sales to some degree in the upcoming festive quarter, particularly in the affordable and mid-range housing segments,” he said.

Also Read: How Will Rising Rates Impact Homebuyers and What Should They Do Now?

Rising home loan rates will add to other rising costs such as inflationary trends in construction input costs. With the overall cost of acquisition rising further, developers will need to seriously consider offering targeted offers and discounts to boost sales during the critical holiday quarter.

“The silver lining, however, is that only when mortgage interest rates cross the 9.5% mark will home sales experience a ‘high impact’. If rates remain between 8.5% and 9%, the impact should be moderate,” Puri added.

Amit Goyal, CEO of India Sotheby’s International Realty, has a similar view. “The rise could negatively impact consumer sentiment ahead of the holiday season. However, from a homebuyer’s perspective, mortgage rates will still remain below 9% per annum and they should take advantage of this opportunity. and make their purchases by taking advantage of festive offers and discounts in the market.

Some real estate consultants believe that home buying sentiment should not be significantly affected as the rate hike was in line with expectations and the market has largely recovered from pandemic lows.

“The RBI has raised the repo rate for the fourth consecutive time as the government remains committed to containing inflationary pressures amid global headwinds. In response, banks are expected to continue raising mortgage rates over the coming months. As the holiday season approaches, developers are likely to come up with enticing programs to entice closeout owners and first-time home buyers. As the rate hike was in line with expectations and the market has largely recovered from pandemic lows, home buying sentiment should not be significantly affected,” said Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.

Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com and Makaan.com, observed: “The 50 basis point rise in the repo rate to 5.9% was expected as the RBI steps up its efforts to rein in the ‘inflation. While banks will eventually be forced to pass on this increased cost to borrowers, the possibility of this happening during the current holiday season is remote. Considering that a large number of home buyers in India are making their purchase decision at this time of year, financial institutions would not want to dampen the festive spirit by immediately raising rates. Even when they do, strong buyer sentiment as well as renewed investor interest in the residential real estate market will likely continue to support housing demand in India.

However, continued rate hikes could ultimately increase the cost of construction and make homes more expensive, as the cost of borrowing for builders will also increase.

Vishal Sharma, Vice President – Wealth Management, Berkshire Hathaway Home Services Orenda, India, said: “Even though the current RBI rate hike of 50 basis points has been well thought out, it will affect the real estate sector. For one thing, contrary to the usual commentary that primarily talks about the impact on retail lending programs, such as home loans, the RBI rate hike is also affecting institutional lending. As a result, this will not only drive up the cost of home loans for home buyers, but the cost of borrowing for builders will also rise. Each rate hike by the Central Bank will also have a ripple effect on financial products.

James V. Hayes