Repo rate hike: Developers watch cautiously, home buyers to pay more

The Reserve Bank of India’s (RBI) sixth consecutive hike in repo rate on Wednesday has made the real estate industry cautious that it may hit the housing demand and at the same time has left home buyers worried about the rising home loan EMIs.

Repo rate is the interest rate at which RBI lends money to commercial banks. The repo rate also has an impact on fixed deposit rates.

Real estate developers have been arguing that the increase in repo rate may not have any impact primarily because in the post-pandemic phase, there is a direct end user-centred demand for secured and bigger homes. The 2022 residential sales numbers in Mumbai saw the highest-ever peak in 10 years despite adverse factors, they said.

Shishir Baijal, CMD, Knight Frank India, said since the rate hike cycle began in May 2022, RBI had increased its repo rate by 250 basis points and about 60% of the hike, so far, had transmitted into the lending rates while the borrowing costs had significantly increased across the product categories.

“The impact of interest rate hike on the housing sector has been limited. The Knight Frank affordability index has deteriorated marginally by an average of 1.4% over the last year. Demand for home loans has remained strong during the last year, as seen in 16% growth in December 2022. We hope that this rate hike will not adversely impact consumer sentiments towards home purchases in the coming financial year,” Baijal said, adding, “RBI has also shared that the GDP growth has moved to 7% from the previous estimates of 6.8%. In terms of growth, India remains a bright spot while other key economies face recession risks.”

Niranjan Hiranandani, national vice chairman, National Real Estate Development Council, warned that the Indian economy had shown resilience, but an increase in the repo rate could have a negative impact.

“The outrageous hike of 250 basis points since May 2021 needs to be warranted before it turns negative for the ascending Indian economic growth curve. The impact of home loan interest rate hike will be highly deterrent in the affordable housing segment as it will impact the price sensitive homebuyers and fatigue the supply of the developers. The luxury and mid-housing segment players will remain cautious with a bit longer sales cycle,” he said.

For home buyers like Praveen Bohra, 34, a synthetic rexine trader from Chembur, the interest rate hike has resulted in a steep rise in EMI.

“I had taken a home loan of ₹1 crore in 2017 from Axis Bank at an interest rate of 7.25% over a 20-year tenure. Earlier, my EMI was ₹85,000 which has now increased to ₹99,000. This increased liability of ₹15,000 per month means that our family would have to cut down on certain expenses. I had even tried to avail myself of the moratorium during the pandemic, asking for foreclosure for 6-9 months. That did not go through, and I still had to pay the interest for the entire 20-year period. As business owners, we can absorb this extra expense; I don’t think salaried professionals would be able to sail this though.”

The pain point is even bigger for those who invested in projects of developers like HDIL which were stalled. These home buyers are paying EMIs and living in rented houses with no sign of their dream homes.

Girish Matangey of HDIL home buyers’ association said, “The project for which 400 home buyers were waiting was to be delivered by 2012-13, but it has been delayed by 10 years now. Almost 25% of the investors took loans when they were in their late 30’s or early 40’s. Now, they are close to their retirement age, and they are forced to not only pay rents of up to ₹50,000 but also loan instalments of up to ₹1.5 lakh. And their aspiration of owning a house in Mumbai remains a pipe dream.”