RBI Monetary Policy: 50bps Rate Hike Will Make Real Estate Costlier: Analyst

The RBI MPC has announced a 50 bps repo rate hike today, taking it to 5.90%. The RBI has increased the repo rate for the fourth straight session to restrict the high inflation rate. The decision by the RBI to raise the repo rate is leading to higher interest on home loans, car loans, etc. This might impact housing demands negatively.

According to Anuj Puri, Chairman, ANAROCK Group, "The 50 Bps hike by the RBI was expected, especially since no global economy has hinted towards any kind of moderation. Inflation continues to ravage almost all economies, and India is no exception. ANAROCK's recent Consumer sentiment survey also highlighted that at least 61% respondents saw high inflation as a major concern for them, seriously impacting their disposable incomes."

"With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments. The hike in home loan rates will be in addition to the other increasing costs such as inflationary trends of construction input costs. With the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter" Puri added.

The silver lining is that only when the home loan interest rates breach the 9.5% mark will housing sales see a 'High Impact'. If rates remain between 8.5-9%, the impact is expected to be moderate, ANAROCK group thinks.

On the other hand, Mr. Nitin Bavisi, CFO at Ajmera Realty commented, "The RBI today increased the repo rate by 50 bps, the quantum of the rate hike was in line with the market expectation, focusing towards the withdrawal of accommodative stance and also the real GDP for FY 23 forecasted as 7%. Markets also anticipate that this increase will lead to the higher end of the interest rate cycle. Increases in interest rates above this level may be concerning for long-term borrowers and may dampen consumer demand for the holiday season. At current levels, real estate economics will continue to maintain its momentum, especially in the short to medium term. From a long-term perspective, besides the domestic inflationary challenges, US Fed and ECB are expected to continue with the trend of raising interest rates which will necessitate rate hike action by RBI."

Additionally, Mr. Cyrus Mody, Managing Partner, Viceroy properties LLP stated, "The RBI MPC hiking repo rate by 50 bps is on the expected lines. Inflation around the globe has become a concern and policy formulation is expected to hover around it. We are witnessing rate hikes across the world. The US Fed and the Bank of England have hiked rates in the past few weeks to control inflation that has hit multi-decade high levels. This is the fourth consecutive hike by the RBI. It will lead to a rise in the EMIs for homeowners as interest rates have cumulatively risen by 190 bps. But, a silver lining for India is that despite the rate hike we are witnessing demand for housing, unlike in the West and China where we can see a clear pricing pressure. With the fiscal situation improving, the Indian economy is expected to grow upwards of 7% for FY23 - going forward, we expect demand for larger homes and high-quality real estate projects to stay intact despite the rate or price rises."