What impact will the RBI’s decision to hike rates have on housing sales? Find out!

12 Jun 2018 Editorial Team

The RBIs decision to increase repo rates by 25 bps to 6.25 per cent after four years of keeping them stable speaks of a carefully deliberated decision in light of the recent inflationary pressure on the economy.

“With inflation in April 2018 close to 4.25 per cent, this decision comes as RBI looks to keep inflation under check in light of the US Fed reserve also announcing an expected hike. The decision was highly expected but will be very critical as the government enters into the election year, ” says Ramesh Nair, CEO & Country Head, JLL India. “The Monetary Policy Committee’s three-day session seems to have taken into account the challenging global environment as well as the consumer inflation, which is also well above the comfort levels for the central bank. The vote for a hike could also have been aided by the increased crude oil prices. Although the government has been passing on the hikes to date, a further hike may be very difficult to pass on which may have put additional pressure on the government.”

Nair believes that the RBI’s decision to hike rates may not have significant on-ground impact on housing sales. “The hike may seem to dampen sentiments in the market, but in terms of real estate may have little or no impact. As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term. As buying decisions are generally not taken based on fluctuations in home loan rates, there will be very little effect on the real estate market. Though for some home buyers looking towards making a very low ticket size purchase decision, there may be some tentativeness in the decision making, overall we will see minimal impact on the end-user in the housing sector.”

For Shishir Baijal, Chairman & Managing Director, Knight Frank India, “The RBI’s stance of increasing the policy rate by 25 bps is in line with our expectation considering that the crude oil flared inflation level and the interest rates in the broader economy have been marching higher for some time now. However, this increase in policy rate will delay the revival of the country’s housing market, which after suffering a prolonged period of slump has just begun to show early signs of improvement on account of uptick in affordable housing.”

Samir Jasuja, CEO and Founder, PropEquity, adds, “The real estate sector had started to slowly improve as we saw a jump of 48 per cent in Q1 in new home launches across India. Hike in repo rate will adversely impact this positive momentum that we witnessed in the last few months. Banks may further hike the borrowing rates for home loans further pushing the homebuyers to fence. However, we expect customer demand to stay solid in the mid-income and affordable housing segment, especially projects by fundamentally sound developers whose projects are nearing completion.”

For Jaxay Shah, President, CREDAI National, “The real estate industry was expecting a reduction in repo rate by RBI. This decision to hike the repo rate by 25 basis points may lead to suppressed growth in the Indian real estate sector, which has shown substantial resilience over the last 18 months. We hope that this move will not have any negative implications for the beneficiaries under PMAY in the form of increased borrowing costs. Indian realty requires lower rates to provide further thrust to ‘Housing for all by 2022’, which will also enable the sector to spearhead the growth of the Indian economy.”

According to Pankaj Bajaj, President, CREDAI NCR, "Real estate sector needs all the help it can to help revive the demand, which has been on hold for last two or three years. We would have been happy if home loan rates had remain unchanged. But 0.25 per cent change in home loan rates is not material to sway the purchase decision of a prospective urban family that is thinking of buying a home. The government has made a number of other interventions in the last 1 year to revive housing demand. I don’t think a marginal rate hike would have too much of an impact. Home loan rates are still quite attractive".

As per Dr Niranjan Hiranandani, President, NAREDCO, the hike of 0.25 basis points in the repo rate will not make a major difference to real estate. He shares: “The RBI has raised a 'cautionary flag' on inflation, by raising the repo rate by 25 basis points. This marks the first interest rate hike in four-and-a-half years. The counter-balancing factor was that the RBI has retained its 'neutral' stance. The six-member monetary policy committee (MPC), headed by Governor Urjit Patel, adjusted reverse repo rate to 6 per cent.”

Terming the rate hike as ‘justified’ on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards, Dr Hiranandani said that the hike of 0.25 basis points in the repo rate would not make a major difference to real estate. He added that in the long run, “We would prefer rates coming down.”

The RBIs decision to increase repo rates by 25 bps to 6.25 per cent after four years of keeping them stable speaks of a carefully deliberated decision in light of the recent inflationary pressure on the economy. “With inflation in April 2018 close to 4.25 per cent, this decision comes as RBI looks to keep inflation under check in light of the US Fed reserve also announcing an expected hike. The decision was highly expected but will be very critical as the government enters into the election year, ” says Ramesh Nair, CEO & Country Head, JLL India. “The Monetary Policy Committee’s three-day session seems to have taken into account the challenging global environment as well as the consumer inflation, which is also well above the comfort levels for the central bank. The vote for a hike could also have been aided by the increased crude oil prices. Although the government has been passing on the hikes to date, a further hike may be very difficult to pass on which may have put additional pressure on the government.” Nair believes that the RBI’s decision to hike rates may not have significant on-ground impact on housing sales. “The hike may seem to dampen sentiments in the market, but in terms of real estate may have little or no impact. As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term. As buying decisions are generally not taken based on fluctuations in home loan rates, there will be very little effect on the real estate market. Though for some home buyers looking towards making a very low ticket size purchase decision, there may be some tentativeness in the decision making, overall we will see minimal impact on the end-user in the housing sector.” For Shishir Baijal, Chairman & Managing Director, Knight Frank India, “The RBI’s stance of increasing the policy rate by 25 bps is in line with our expectation considering that the crude oil flared inflation level and the interest rates in the broader economy have been marching higher for some time now. However, this increase in policy rate will delay the revival of the country’s housing market, which after suffering a prolonged period of slump has just begun to show early signs of improvement on account of uptick in affordable housing.” Samir Jasuja, CEO and Founder, PropEquity, adds, “The real estate sector had started to slowly improve as we saw a jump of 48 per cent in Q1 in new home launches across India. Hike in repo rate will adversely impact this positive momentum that we witnessed in the last few months. Banks may further hike the borrowing rates for home loans further pushing the homebuyers to fence. However, we expect customer demand to stay solid in the mid-income and affordable housing segment, especially projects by fundamentally sound developers whose projects are nearing completion.” For Jaxay Shah, President, CREDAI National, “The real estate industry was expecting a reduction in repo rate by RBI. This decision to hike the repo rate by 25 basis points may lead to suppressed growth in the Indian real estate sector, which has shown substantial resilience over the last 18 months. We hope that this move will not have any negative implications for the beneficiaries under PMAY in the form of increased borrowing costs. Indian realty requires lower rates to provide further thrust to ‘Housing for all by 2022’, which will also enable the sector to spearhead the growth of the Indian economy.” According to Pankaj Bajaj, President, CREDAI NCR, "Real estate sector needs all the help it can to help revive the demand, which has been on hold for last two or three years. We would have been happy if home loan rates had remain unchanged. But 0.25 per cent change in home loan rates is not material to sway the purchase decision of a prospective urban family that is thinking of buying a home. The government has made a number of other interventions in the last 1 year to revive housing demand. I don’t think a marginal rate hike would have too much of an impact. Home loan rates are still quite attractive". As per Dr Niranjan Hiranandani, President, NAREDCO, the hike of 0.25 basis points in the repo rate will not make a major difference to real estate. He shares: “The RBI has raised a 'cautionary flag' on inflation, by raising the repo rate by 25 basis points. This marks the first interest rate hike in four-and-a-half years. The counter-balancing factor was that the RBI has retained its 'neutral' stance. The six-member monetary policy committee (MPC), headed by Governor Urjit Patel, adjusted reverse repo rate to 6 per cent.” Terming the rate hike as ‘justified’ on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards, Dr Hiranandani said that the hike of 0.25 basis points in the repo rate would not make a major difference to real estate. He added that in the long run, “We would prefer rates coming down.”