The RBI's recent decision to maintain the repo rate at 6.50% on Thursday brought great relief to both the real estate industry and home buyers who have been paying off their home loans, following six consecutive rate hikes.
The Reserve Bank of India (RBI) increased the repo rate, the interest rate at which commercial banks borrow funds from the central bank, six times consecutively since February to control inflation. As a consequence, the rate climbed from 4% in January 2022 to 6.5%, leading to an increase in home loan interest rates to 9.5%.
Praveen Bohra, a trader, expressed relief following the repo rate pause, stating, "It is a significant respite for home buyers like me. My monthly home loan EMIs had risen from ₹80,000 to ₹1.02 lakh." He urged the central bank to consider decreasing the repo rate in the future since high-interest rates were now affecting home buyers. "When I obtained my home loan in 2017, the interest rate was at 12 percent, but it decreased to 6 to 6.5 percent. Now, with the rising rates, I'm attempting to sell my flat, but potential buyers appear to be delaying their purchase decisions."
The real estate industry, which had been expecting a 25 basis point rate hike on Thursday, welcomed the RBI's decision to keep the repo rate unchanged. Niranjan Hiranandani, the National Vice-Chairman of the National Real Estate Development Council (NAREDCO), praised the move, saying that "India Inc commends the RBI's decision to pause the rate hike cycle. This relief action will restore confidence among home buyers and stimulate demand in the real estate sector." He also urged the Indian government to intervene fiscally to address the inflationary pressure caused by persistent geopolitical turmoil, foreign bank failures, supply chain disruptions, and global financial instability. Additionally, he suggested that banks and FIIs should introduce innovative flexi or step-up EMI schemes to help market participants attract new home buyers in a high-interest rate environment.
According to Shishir Baijal, the Chairman and Managing Director of Knight Frank India, the RBI's decision to halt its rate hike cycle is beneficial for economic growth. He stated, "India's economy is projected to expand at 6.5% in FY24, which is an optimistic outlook for the economy in the midst of ongoing global financial market volatility and concerns about an economic slowdown." He also mentioned, "From a real estate market perspective, the industry has endured multiple home loan interest rate hikes from a low of 6.5% to 8.75%, aided by favorable house purchase affordability and a strong desire for home ownership. Therefore, a cessation in any further lending rate increases should support the existing growth momentum in the housing sector."
According to Anshuman Magazine, CEO for India, South-East Asia, Middle East & Africa at CBRE, the RBI's decision to maintain the repo rate stability was a surprising move made with the intention of withdrawing accommodation while monitoring inflation closely. He believes this move will greatly benefit the infrastructure, housing, and other real estate sectors as it alleviates concerns about an additional financial burden on developers and borrowers in the immediate future.
According to Sanjay Dutt, the MD, and CEO of Tata Realty & Infrastructure Ltd, the RBI's decision to keep the repo rate unchanged would have a positive impact on home loan borrowers. He stated that the central bank had taken into account the impact of market dynamics and the sentiment of homebuyers towards the economy, and this move would provide stability and encourage banks to lend more to consumers. As a result, there would be a higher credit flow to the housing sector, which would boost demand for residential real estate and make it an attractive investment option for aspiring homebuyers.
Venkatesh Gopalkrishnan, CEO of Shapoorji Pallonji Real Estate, expressed his appreciation for the RBI's decision to pause the repo rate hike as a much-needed relief for the real estate industry. While acknowledging the positive impact of this move, Gopalakrishnan also recognized the RBI governor's warning that it may only provide temporary relief and could be necessary to combat inflationary growth in the country. However, he remains optimistic that this decision will aid in stabilizing the real estate sector in the short term.
Ashish Kukreja, the Founder & CEO of Homesfy, stated that the decision of keeping the repo rate unchanged is a relief for both the real estate sector and homebuyers. He clarified that the industry was concerned about the escalating repo rate that resulted in higher borrowing expenses for individuals and businesses. Within just six months, the repo rate had surged from 4 to 6.5%, which was a significant rise in a short span. Had the repo rate continued to increase, it might have exceeded the psychologically acceptable threshold of 10%, affecting homebuyers' perceptions of affordability.
Despite the repo rate remaining stable, the current situation still presents challenges for affordable property sales. On the other hand, the luxury real estate market has not been affected. As a home loan assistance provider, we have noticed that only 30-40% of people opt for loans, while 70% of those in the higher price range do not. The repo rate has not changed, and it remains at 6.50% as of April 2023. Consequently, we expect sales to remain stable, and the real estate industry to continue growing. It's crucial to keep in mind that the market has bounced back historically, and we don't expect this situation to be any different.
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