RBI repo rate hike impact: How it affects homebuyers, real estate sector in general

The Reserve Bank of India's (RBI) decision to increase repo rate by 50bps was on expected lines, however, it is likely to impact homebuyers negatively as EMIs are set to get costlier. Apparently, the repo rate will prompt the banks to increase rates on all kind of loans, including auto loans. The repo rate is the interest rate at which the RBI lends short-term funds to banks. Hence, with the increase in repo rate, home loans and auto loans are expected to go up. 

Experts though feel the hike was on the expected line as inflation remained above the comfort zone of the RBI and measures were required to tame it, however, it will impact homebuyer sentiments negatively, they say.  

"We have observed a robust comeback in residential sales and launches in the last couple of quarters. From a real estate perspective, this hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer's sentiments," said Ramani Sastri - Chairman & MD, Sterling Developers Pvt. Ltd 

Although the recent step will increase the home loan rates, an unstable economy is not conducive to the overall health of the real estate industry, said Atul Goel, MD, Goel Ganga Group.  

"For the industry to operate optimally, it is important that the economy continues to grow in a stable, inclusive, and steady fashion. To curb inflation, the regulatory bodies in India were required to control liquidity circulation in the economy," said Goel.  

Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too as the economy is still recovering from the pandemic, says Sastri.  

As per Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company, known for luxury holiday homes in Goa, the current round of hikes could make the buyers apprehensive and they might as well adopt a wait and watch attitude.  

"But on a positive note, the continued wage and job growth in varied sectors will provide a cushion in the short term for the purchasing decisions," he said. 

Rodrigues was of the view that rate hike won’t have significant impact on homebuyers as home loan interest rates have already gone down substantially in the recent past and buying decisions may not be altered by these marginal changes.  

"The outlook for India Inc looks positive with higher affordability and disposable income in the hands of new-age investors," he says. 

Saying repo rate hike was need of the hour to control spiralling inflation, Suren Goyal, Partner, RPS Group said the government should also take concentrated efforts to reduce the spike in prices of raw materials such as cement, bricks, steel, etc. as it will give some relief to the sector. 

"Already raw material prices are increasing and an unbridled rate of inflation will further drive the input costs northwards, therefore resulting in cost overruns for the developer fraternity. In such a case, they will have no option but to pass on the price to the homebuyers," said Goyal. 

 Kunal Valia, Chief Investment Officer – Listed Investments, Waterfield Advisors said the repo rate hike by RBI will impact the home loan borrowers, both the existing as well as the new ones. "The hike is positive for the banks and the NBFCs but it is a burden for the borrower," he said. 

Kalpesh Dave, Head Corporate Planning & Strategy, Star HFL, advised existing and new home borrowers to brace for more increase in home loan rates through the year and plan their financials accordingly. "It makes sense for existing borrowers to engage with lenders to see if they can maintain their EMIs through increase in balance tenor for floating rate loans and also after a careful cost-benefit analysis may seek to switch to fixed rate loans, as it would give visibility on EMI outflow on a sustainably," said Dave

Announcements of raising individual housing loan limits for cooperative banks and allowing them to finance residential projects bode well for the credit flow to the housing sector, the expert added.

Earlier, the Monetary Policy Committee (MPC) raised its inflation forecast for the current fiscal (April 2022 to March 2023) to 6.7 per cent from April prediction of 5.7 per cent but retained its economic growth projection at 7.2 per cent.The inflation projection for this fiscal is 6.7% and will remain above the tolerance band of 2-6%  for three quarters in this fiscal, RBI is still expects the economy to grow at a rate of 7.2% . The SDF and MSF have been increased to 4.65% and 5.15% respectively