If you are planning to buy a home through loans, you may now have to spend a significantly higher amount than just a few months ago. As the Reserve Bank of India (RBI) continues with its rate hiking cycle, home loan interest rates are surging steadily - increasing EMI (equated monthly instalment) outflow for homebuyers.
After raising the lending rate (Repo Rate) four times since May, the RBI today announced a fresh round of hikes - by 35 basis points. Together, these five rate hikes have resulted in a 225 basis points increase in the Repo Rate - the rate at which banks & other lenders borrow money from the central bank. One basis point is one hundredth of a percentage point.
Resultantly, the home loan interest rates are now set to surge by over two per cent compared to early May. As per one estimate, the cumulative impact of these rate hikes on home loan EMIs for mid-segment home buyers now ranges between 9-12 per cent. Coupled with rising home prices, due to higher construction costs, is making developers and industry experts jittery.
According to Dhruv Agarwala, Group CEO, Housing.com, Proptiger.com and Makaan.com, home loan interest rates have already surged to 8.5 per cent (before the fifth rate hike announced today) from 6.5 per cent in May. With today’s rate hike, “the cost of borrowing for both individuals and corporates will go up, which will impact economic activity,” he said.
“The property market may experience a lag in sales to accommodate rising EMI payouts and simultaneously evaluate postponement options for a stipulated period of time. The floating home loan interest rate due to rate hike may hurt temporary EMI payouts, but in the long tenure it averages out positively,” said Niranjan Hiranandani, Co-Founder and Managing Director, Hiranandani Group of Companies and Vice chairman of industry body NAREDCO.
According to Anuj Puri, Chairman of Anarock Group, today's hike “will undoubtedly push up home loan interest rates, which had already crept up after four consecutive rate hikes this year. However, as long as interest rates remain in single digits (mainly within 9.5 per cent) the impact on housing will at best be moderate. If they breach this point, we will see some real pressure on residential sales volumes in the months to come – especially in the affordable and lower mid-range housing segments,” he said.
“The continuous rate hikes may lead to short-term turbulence in the overall housing demand when buyers are optimistic of making a home purchase decision and this may add to buyers’ overall acquisition cost. The real estate sector had started seeing gradual recovery across key property markets, driven primarily by end-users, however, the repeated rate hikes may impact the interest rate-sensitive sector. Low interest rates have been the biggest factor in the resurgence of real estate demand in the last few years and hence the rate hike would mean a hurdle in affordability,” said Ramani Sastri, Chairman & MD, Sterling Developers.
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