The Reserve Bank of India's move to hike repo rate by 40 basis points in a bid to contain inflation that has been spiraling owing to global geo-political scenario and its impact on the Indian economy is expected to slow down the housing demand momentum. However, it may not hit the recovery in housing sales in a significant way at least for now.

The central bank has hiked the repo rate after nearly two years as the rate was kept unchanged at 4% since May 2020.

The cost of construction, which has already gone up since the last few months owing to the Russia-Ukraine war and now the financing cost for both homebuyers and developers is expected to impact the residential real estate sector, experts and industry observers said.

From a real estate point of view, this hike in policy rate is not welcome and will have a negative impact as home loan rates will increase immediately. After a hiatus of five years, we have observed a robust comeback in residential sales and launches in the last couple of quarters due to ‘affordability synergy’," said Samantak Das, Chief Economist, and Head Research and REIS, India, JLL.

According to Das , this repo rate hike coupled with cost-push inflation in construction is likely to slow down the growth trajectory of the residential sector, which does not augur well for the Indian real estate sector.

After two years of unchanged repo rate, the RBI 's decision to hike the interest rate by 40 bps at one go to 4.40% has come as a sudden surprise for many in the property sector in an off-cycle monetary policy meeting.

"In keeping with the stance of withdrawal of accommodation, the sharp acceleration of rates will affect the homebuyers with concerns of instalments on home loans. The state governments such as Maharashtra that are the largest beneficiary of housing demand should come forward to support the home buyers by reducing stamp duty rate to 3%," said Pritam Chivukula - Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI MCHI.

Housing sales across India had scaled a new peak during January-March for the second straight quarter, since the second quarter of 2013, as Bangalore clocked the highest-ever quarterly sales and Mumbai Metropolitan Region (MMR) saw its sales stand at an 11-year high during this period.

Realty developers believe the rate hike will impact the growth in residential sale, albeit in the short-term.

"We believe this rate hike is short-term and going forward, housing sales will continue to grow. Acquiring a home is seen as the biggest decision of one’s life and these short-term decisions are unlikely to have an impact on a buyer's decision. Builders are still offering attractive schemes and in a few months, we will be amidst the festive season, which will bring back the buyers," said Rajan Bandelkar, President, NAREDCO.

Although the hike in rates is being seen as a factor that can dent the demand revival seen in the last six quarters, few experts and industry participants also expect the sales momentum to continue.

"The repo rate hike may increase acquisition cost of the home buyers, subject to lenders also increasing home-loan rates in tandem with the repo rate. However, the impact would be marginal on residential sales given the strong end user demand for homes backed by the increase in hiring and wages witnessed lately," said Aparna Chaughule, Associate Director, India Ratings and Research who expects overall residential sales to increase by 12% in 2022-23.

Residential sales across top seven cities have witnessed 11% on-year rise at over 58,840 units during the first quarter of 2022, showed JLL India data. Revival in demand for housing driven by a combination of factors including record-low interest rates and pandemic-induced realization of the need of home ownership is helping attract liquidity from these institutional investors.

Source: Economic Times