The Reserve Bank of India’s fifth increase in interest rates since May 2022, which now brings the home loan rates at pre-Covid levels. The RBI increased the benchmark lending rate by 35 basis points to 6.25 percent on December 7 in a bid to tame inflation, which has remained above its tolerance level for 11 months. The benchmark rate has gone up 225 basis points since May. This latest hike comes after a 40-bps increase in May and a 50 bps hike each in June, August, and September.
Niranjan Hiranandani, Vice Chairman, NAREDCO said, “The prolonged rate hike by 35bps to 6.25% still remains in the low regime of interest rate zone. The demand for residential real estate has expanded multifold across segments and geographies corroborating the improved bank credit figures in the retail home loan segment. The sector continues to exude signs of a bullish growth curve as the promising macro-economic growth vectors bodes well to fuel investment inflow, enhanced capex cycle and new inventory in the market.”
The gradual easing of inflation is also expected to partially mitigate input cost pressures and provide legroom for developers to offer competitive-value homes and keep home purchase affordability within range, he added. Amarjit Bakshi, CMD, Central Park said “Despite the constant rate hikes, the housing segment has outperformed the previous records of sales and new launches. Banks have absorbed the previous rate hikes for new loans which has sustained the high housing demand and this is expected to remain upbeat. However, we don't see any substantial impact on the high-end and luxury housing segment as it remains immune to such developments.”
Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE stated, “The RBI's decision to increase the repo rate by 35 basis points to 6.25% is a well-aimed move to tame inflation, which has been moderating for some time now. However, given the current scenario, it was also a widely anticipated move. We also believe that it is a sign that the RBI's monetary tightening is now in its final phase, which spells positive news for the real estate industry.”
The benchmark rate has gone up 225 basis points since May. This latest hike comes after a 40-bps increase in May and a 50 bps hike each in June, August, and September. Some experts believe the trajectory of rising interest rates may give the rental market a fillip if potential homebuyers find that purchasing a house is beyond their budget.
