Home loan interest rates are often tied to the repo rate set by the central bank. When the repo rate increases, banks typically increase the interest rate on their loans, including home loans. This means that borrowers will have to pay more interest on their loans, which will increase their monthly repayments or loan tenure.
High-interest rates discourage homebuyers from investing in property, which leads to a decrease in demand, causing a slump in the housing market. The high rates force homeowners to reassess their EMIs, monthly budgets, and lifestyle plans, leading them to delay their home-buying decisions.
Thus, the unchanged Repo Rate by the Reserve Bank of India (RBI) has not only been welcomed by the real estate sector realty leaders, but also by those who are shelling out from their pockets on a monthly basis for home loans.
Despite the anticipation of a hike in the repo rate amid the global economic slowdown and rising inflation, the Reserve Bank of India decided to maintain the repo rate as 6.50 percent for the third time in row earlier this month.
WILL MORE HOMES SELL THIS FESTIVE SEASON
The decision by the Monetary Policy Committee (MPC) to keep the repo rate unchanged has got mixed reactions across the real estate industry. No doubt, the current third time stand by the RBI to keep the repo rate unchanged has come as a relief for the home buyers and experts says this festive season might see more smaller ticket sizes homes selling.
. Real estate leaders feel the constant rate will bring a sense of certainty in the industry. The unchanged rate will help keep home loans in budget, making more people going forward to own a home.
As Boman Irani, President, CREDAI National puts it, “RBI's stance of maintaining the repo rate at 6.5% is a cautious step towards further controlling inflation in the long run. This will increase consumer spending in the festive season & fuel demand across sectors.”
Anurag Mathur, CEO – Savills India was of the view that the decision is justified on the grounds that retail inflation, at 4.8% in June 2023 is well within RBI’s tolerance zone of 6%, and the current irregular food inflation is unlikely to spill over to core inflation. The stable repo rate will augur well for enhancing consumer confidence in the real estate market which, in turn, can help boost housing sales velocity especially during the upcoming festive season which is considered auspicious for buying homes.”
Dhruv Agarwala, Group CEO, Housing.com, Proptiger.com, and Makaan.com concurred,“ The unanimous decision of the six-member rate-setting panel of the RBI comes as no surprise. With the nation currently dealing with sky-high vegetable prices and a tumultuous monsoon, which in turn raise worries about a potential surge in inflation, the move by the central bank was appropriate. As a result, there will be no changes in home loan EMIs, which is a positive signal for prospective homebuyers. This move might also serve to boost sentiment in the lead-up to the festive season, which is an important time for the real estate industry.”
FACTORS MAKING HOUSING EXPENSIVE
The hyped about concern of providing ‘Housing For All’ in the government circles, authorities and the real estate sector has not produced much results in terms of making housing affordable for most, if not all.
The relief from unchanged repo rate does not solve the other major issues which developers have been facing and highlighting to the authority from time to time.
The Government will have to take measures to keep under check the cost of steel, cement and other raw materials of construction. This may threaten the viability of affordable housing projects.
There has been a request to the Government to provide some strategic support by giving real estate an industry status, input credit, single window clearance mechanism at state level and lowered GST on raw materials that will benefit the second largest sector for employment as well as the homebuyers from lower strata.
This latest status quo in repo rates although unifies the industry view that the interest rate hike cycle has come to a standstill, whether there will be any fall or hike in near future, is anyone’s guess.
IN THE LAST FEW YEARS THERE HAS BEEN A CONSISTENT RISE IN THE COST OF CONSTRUCTION MATERIALS WHICH HAVE LED TO THE INCREASE IN THE PRICE OF REAL ESTATE PROJECTS. AS THE REPO RATE ALSO SAW UPWARD REVISIONS, HOME LOANS ALSO BECAME AN EXPENSIVE AFFAIR. THIS HAS LED TO A SLOWDOWN IN THE INVESTMENT FROM POTENTIAL BUYERS IN THE AFFORDABLE HOUSING SEGMENT.
SALES IN THE UNDER RS 50 LAKH TICKET SIZE CATEGORY HAVE TRENDED DOWN AS HOMEBUYERS IN THIS SEGMENT HAVE A MUCH HIGHER DEPENDENCE ON HOME LOANS AND ARE THEREFORE MORE SENSITIVE TO RATE HIKES.