In a bid to tame inflation and provide support to economic growth, the Reserve Bank of India hiked the repo rate by 50 bps in its monetary policy review meeting on Wednesday. Although the policy rate hike was almost certain this time, what surprised most of the industry experts was the quantum of increase as many of them were expecting the hike to be in the range of 25-35 bps.
The second rate hike by the apex bank in just one month, experts feel, may help contain inflationary pressures in the economy, but surely doesn’t bode well for the housing sector as apart from impacting the homebuyer sentiment, it will also impact residential sales.
Commenting on the RBI move, Anuj Puri, Chairman, ANAROCK, said, “As anticipated, with inflation edging higher in the aftermath of the Russia-Ukraine war and the surging oil prices, the RBI has decided to increase the repo rates by 50 bps. It is now increased to 4.90%. A hike was inevitable, but we are now entering the red zone. Any future hikes will reflect markedly on housing sales.”
Considering that inflation continues above its target zone of 6%, a hike was inevitable, and it will doubtlessly have some repercussions on housing uptake. The RBI is tasked with controlling the spiralling inflation in the country but must simultaneously be careful to not hurt demand recovery. This is a tightrope walk under the best of circumstances. Overall, high inflation with low GDP can be cause of worry but as of now the Indian economy remains robust.
Impact on Housing Sales
“The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month. Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12% and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments,” said Puri, adding that “the silver lining is that the Indian housing market is still largely end-user driven. So, there is no investor mindset seeking the lowest possible entry point. Genuine demand comes from an underlying aspiration for homeownership.
Some other realty consultants also didn’t see any major impact on the demand side in the housing market, which continues to remain strong.
Amit Goyal, CEO, India Sotheby’s International Realty, said, “The RBI decision to hike the policy rates is on the expected lines. With inflation lingering obstinately high, RBI had little choice. We hope the hike in repo rate would rein in rising commodity prices and ensure sustainable growth in the long term. At the same time, we don’t see any major impact on the demand side in the housing market, which continues to remain strong. We are hopeful with the supply side measures taken by the government, inflation will cool down by the year-end, and the central bank will revert to a lower interest rate regime.”
Right Time To Buy Home
Whatever be the case, it may be an opportune time for homebuyers to take advantage of the prevailing home loan rates.
Ramesh Nair, CEO, India and MD, Market Development, Asia, Colliers, observed, “The hovering inflationary concerns amidst the resilient domestic economy supports this RBI’s aggressive move. Despite the challenging global environment, Indian economy is strongly placed and on the path to recovery and GDP growth is pegged at 7.2% for FY 2022-23. On a cumulative basis, this translates into an almost percentage point increase in the repo rate in the last 1 month. However, it remains lower than the pre-pandemic level of 5.15%. We expect banks to gradually pass on this rise in the form of higher home loan rates in the coming months. An opportune time for homebuyers to take advantage of the prevailing home loan rates at a time when prices are also expected to rise in most of the markets led by a revival in demand.”