Any more hike rate could result in bad news for real estate sector

As the Reserve Bank of India (RBI) increased the benchmark lending rate – repo rate – by another 35 basis points, real estate experts feel any more hike would derail the recovery in the sector.

Home loan rates have already breached the 9% mark for those with a credit score of 750 and above, and the latest round of repo rate hikes may add to the burden for home buyers – new and old.

Anuj Puri, chairman of ANAROCK Group, says that the hike will undoubtedly push up home loan interest rates, which had already crept up after four consecutive rate hikes this year.

However, he also feels that the impact on housing will at best be moderate if the interest rates remain in single digits (mainly within 9.5%). “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,” says Puri.

According to ANAROCK, the impact of the last four consecutive rate hikes earlier this year was minimal. This was clearly validated by the outstanding performance of the housing sector in the last quarter (Q3 2022).

As per ANAROCK Research, as many as 88,230 units were sold across the top 7 cities in Q3 2022, after the three recent rate hikes. Consumer demand remained strong with sales rising by 4% against the preceding quarter and 41% annually.

However, the real estate sector sees this growth slowing down due to continuous rate hikes.

Ramani Shastri, chairman & MD of Sterling Developers, says that 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 be detrimental to the sector.

“The real estate sector has 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,” he says.

Amit Goyal, CEO of India Sotheby's International Realty, says that so far, despite home loan interest rates increasing by 150 basis points, demand for residential across the top seven cities has been very strong.  “We believe this momentum should continue till home loan rate remains in single digit,” he added.

Some realtors expect the latest hike to be the last of rate hikes as any further increase will start hurting the home buying sentiment, especially in affordable and mid-segment.

According to RBI governor Shakti Kanta Das, the weighted average fresh loans have gone up by 117 basis points since May this year. Meanwhile, the weighted average rate on outstanding loans has gone up by 46 basis points.

As the Reserve Bank of India (RBI) increased the benchmark lending rate – repo rate – by another 35 basis points, real estate experts feel any more hike would derail the recovery in the sector. Home loan rates have already breached the 9% mark for those with a credit score of 750 and above, and the latest round of repo rate hikes may add to the burden for home buyers – new and old. Anuj Puri, chairman of ANAROCK Group, says that the hike will undoubtedly push up home loan interest rates, which had already crept up after four consecutive rate hikes this year. However, he also feels that the impact on housing will at best be moderate if the interest rates remain in single digits (mainly within 9.5%). “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,” says Puri. According to ANAROCK, the impact of the last four consecutive rate hikes earlier this year was minimal. This was clearly validated by the outstanding performance of the housing sector in the last quarter (Q3 2022). As per ANAROCK Research, as many as 88,230 units were sold across the top 7 cities in Q3 2022, after the three recent rate hikes. Consumer demand remained strong with sales rising by 4% against the preceding quarter and 41% annually. ALSO READ | India's GDP to grow at 6.8% in FY23, inflation remains a pain point: RBI Governor However, the real estate sector sees this growth slowing down due to continuous rate hikes. Ramani Shastri, chairman & MD of Sterling Developers, says that 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 be detrimental to the sector. “The real estate sector has 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,” he says. Amit Goyal, CEO of India Sotheby's International Realty, says that so far, despite home loan interest rates increasing by 150 basis points, demand for residential across the top seven cities has been very strong.  “We believe this momentum should continue till home loan rate remains in single digit,” he added. Some realtors expect the latest hike to be the last of rate hikes as any further increase will start hurting the home buying sentiment, especially in affordable and mid-segment. According to RBI governor Shakti Kanta Das, the weighted average fresh loans have gone up by 117 basis points since May this year. Meanwhile, the weighted average rate on outstanding loans has gone up by 46 basis points.