Realtors jittery over RBI's repeated repo rate hikes

The second round of increase in repo rate, effected by the Reserve Bank of India (RBI) on Wednesday, has the potential to impact housing demand in the country. After the rate was hiked by 50 basis points, real estate developers and market experts are also worried about the growing cost burden that it may bring on companies due to higher interest on loans.

According to Anuj Puri, Chairman of ANAROCK Group, while the hike was inevitable, the industry is "now entering the red zone. Any future hikes will reflect markedly on housing sales", he said. "The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month. Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12% and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments."

"RBI's 50 basis point hike and other measures will have an impact on the housing sales, resulting in spike of house loan interest rates. Even though this hike was inevitable, it has propelled us beyond a much-feared mark. Home sales will face significant consequences, in case of any future increases", said Kalpesh Mehta, Founder, Tribeca Developers.
 
Nitin Bavisi, Chief Financial Officer, Ajmera Realty and Infra India  says, while developers now "expect rationalization of increase in key input cost like steel and cement, coupled with interest rate reversal in home loan from a decade low rates may help the real estate sector to remain in the stable price regime."
 
According to Niranjan Hiranandani, Vice Chairman of industry body NAREDCO and President of Mumbai-based Hiranandani Group, while the RBI has already increased the repo rate by 90 basis points since early-May, it may not impact housing demand immediately as the market has already gained significant momentum.

"It is evident that home loan interest rate hike will impair the home buying rally as pay out in terms of EMI is scheduled to rise. However, this crater in demand sentiment is a makeshift move, as home loans are based on floating rate for a long tenure. The EMI (equated monthly installment) constraint will ease as rates are expected to normalize once the global situation is stabilized", said Hiranandani.

Market experts like Puri from Anarock says, as the housing market growth is largely driven by end-users and not investors, the market may not witness a free fall in demand due to rise in interest payment. "The silver lining is that the Indian housing market is still largely end-user driven, so there is no investor mindset seeking the lowest possible entry point. Genuine demand comes from an underlying aspiration for homeownership", he said.

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