Terming the hike in the repo rate by 40 bps to 4.40 per cent with immediate effect as ‘the obvious fallout of the impact which the Ukraine conflict has had on global inflation’; which in turn, has also impacted the Indian economy, Dr Niranjan Hiranandani Vice Chairperson NAREDCO and MD Hiranandani Group described the move as a short-term reaction to crude prices and impact of inflation on commodities. From a real estate perspective, he said he hoped the hike in repo rates will not impact home loan interest rates; and that the regulator will ensure that inflationary pressure on the individual does not get exacerbated by hiked rates of home loans. The RBI move comes with the backdrop of India’s inflation rates soaring to a high, with retail inflation in March being at a 17-month high. “Inflation rates in India have been beyond the RBI’s upper band of tolerance, which is 6 per cent, and the rationale of the move makes sense – the hope being that home loans would not get impacted,” he added.
Anuj Puri, Chairman – ANAROCK Group termed RBI tough unscheduled decision as RBI Shocker and the Beginning of the end of low-interest home loans. “With inflation edging higher in the aftermath of the Russia-Ukraine war and the surging oil prices, the RBI took a tough unscheduled decision – to increase the repo rates by 40 bps, bringing them to 4.40%. This rise in interest rates will ultimately impact overall acquisition cost for homebuyers - and may dampen residential sales to some extent. A deep dive revealed that 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.”
Rohit Gera, Managing Director, Gera Developments responded, “An increase in repo rate has been expected on the back very high inflation. Rising interest rates along with rising prices of homes on account of high inflation will have a significant negative impact on the real estate sector as both impact affordability significantly."
Ramesh Nair, CEO, India & Managing Director, Market Development, Asia at Colliers expressed,” The RBI increased the repo rate by 40 basis points to 4.4% for the first time in almost two years. This comes at a time when inflation has been rising to an 18-month high amidst a rebound in domestic economic activity. From a real estate perspective, we don’t expect an immediate increase in home loan rates by commercial banks. This makes it a good time for homebuyers who were on the fence about buying their dream home. With home prices expected to rise in certain segments, it is an opportune time for homebuyers to take advantage of the current low home loan rates and largely stable prices before banks reset interest rates.”
Rohit Gupta, CEO at Mantra Properties added, “These are the first signals of company's revenues being impacted in the coming next quarters, if not years. All this has happened very quickly. The post-pandemic period has already passed and stamp duty has returned to normal. Even the challan payment discounts for corporate development have been restored to normal. So, if the house loan rates begin to rise because of the repo rate, the home loan rates will undoubtedly rise. As a result, the banks will follow suit, raising the cost of funds which will have an upward impact on the buyer's affordability. This in-turn will have an effect on the developers' sales. As a result, we as developers are hoping that the government devises a strategy to combat this. Otherwise, we will face challenging time, particularly in the approaching years."
Dr. Samantak Das, Chief Economist, and Head Research and REIS, India, JLL said, “ From a real estate point of view, this hike in policy rate is not welcome and will have a negative impact as home loan rates will increase immediately. After a hiatus of five years, we have observed a robust comeback in residential sales and launches in the last couple of quarters due to ‘affordability synergy’. However, this repo rate hike coupled with cost-push inflation in construction is likely to slow down the growth trajectory of the residential sector, which does not augur well for the Indian real estate sector.”
Shrey Aeren, Managing Director & Country Head of Berkshire Hathaway Home Services Orenda was of the view, “This rate hike will have a limited impact on residential sales as the housing market has already acclimatized itself to expectations of this rate hike by the apex bank. We also foresee that several banks may absorb full or part of the rate hike to keep home loan borrowing rates at attractive levels. The rate hike is the need of the hour with lots of inflation being imported, RBI needs to maintain the balance in the economy. Repo rates are the benchmark for home loan rates and lending interest rates are linked to the repo rate, which is known as Repo Rate Linked Lending Rate (RLLR). Thus, RLLR is the repo rate coupled with margin charged by the bank. This whole equation indicates that with an increased repo rate, ultimately banks may revise the home loan rates soon.”