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The repo rate is the rate at which the RBI lends money to other banks and by keeping it steady, combined with inflation within its target range of 2-6%, the real estate sector feels optimistic of the sales. However, they do emphasize on the need for intervention to support the affordable housing segment.
Developers share that the stability in repo rates at 6.50% for the eighth consecutive time has brought relief to potential buyers, as they can proceed with their investments without facing rising loan interest rates. With rising housing demand, stable loan rates will foster greater confidence among buyers and developers. The decision will benefit the luxury real estate sector, however, concerns about affordable housing and real estate development in Tier 2 and 3 cities remain.
As Manoj Gaur, President of CREDAI NCR and CMD Gaurs Group said, "Even though a marginal reduction in the repo rate would have further raised the real estate sector’s spirit, we welcome RBI’s announcement not to change the interest rate. One area of concern is the affordable housing segment, which requires an intervention.”
Indeed, the real estate had already been performing well over the last few years, and the developers are optimistic that the stability in loan rates will sustain the momentum in the sector, but they also call for call for reduction in home loan rates especially for the affordable housing buyers.
The Impact On Home Loans
The affordable and mid-segment property buyers are most sensitive to volatile interest rates, and upward hikes would have caused many of them to defer their home purchases.
The stable interest rates will ensure sustained demand in these two segments for the real estate developers. However, for homebuyers, sadly, the unchanged repo rate hasn't brought much cheer as their loan payments are likely to stay the same. On the brighter side, despite the increasing cost of housing, unchanged home loan rates have offered some relief to potential homebuyers.
In all, the RBI’s repo rate adjustments deeply affect the housing affordability and loan repayment terms. An increase in the repo rate means it becomes costlier for banks to borrow money from the central bank. In turn, banks pass on the increased borrowing costs to their customers which translates into higher interest rates on new and existing home loans for home buyers. While, any change in repo rate is felt immediately by the existing home loan borrowers with floating interest rates, there is no impact on fixed rate loan borrowers unless they go for refinancing or reset their loan terms.
The Expectations
The real estate sector and the homebuyers anticipate a rate cut in the coming budget that will give much higher purchasing power to the customer especially in tier II and III cities. More optimized lending rates is the need of the hour in the affordable housing segment and developers in this segment are hopeful of seeing rate cuts of 25-50 basis points in the second half of the fiscal year.
Economists anticipate that if inflation continues to decline, reductions in interest rates could be introduced in future policy reviews. If these rate cuts materialize, it would make borrowing cheaper, encouraging more people to invest in property and stimulating further growth in the housing market.
As banks are unlikely to adjust their lending rates, meaning EMIs will stay the same as of now, but with expectation of repo rate cuts in near future, the new home buyers can opt for a floating-rate loan for potentially lower EMIs. A fixed-rate loan is a better option for those who prefer stable EMIs. And in case the interest rates fall significantly, they can go for refinancing their existing home loan to avail a lower EMI.
Experts are largely of the view that as of now the reduction in interest rates by banks has been postponed due to the current pause in the repo rate. But, the period of rising interest rates is coming to an end and there are promising signs of decrease in rates in the coming few years. According to Anshul Jain, Chief Executive India & SE Asia & APAC Tenant Representation, Cushman & Wakefield, “With the European Central Bank and Bank of Canada beginning to cut policy rate, we can expect that other central banks could follow suit in the near future.”
