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Although the repo rate hike of 25 basis points (bps) is on expected lines, it will have an impact on the demand for affordable housing in India, experts told Business Standard. However, the luxury housing segment does not see any significant change post the rate hike.
“With repo rates now at 6.5 per cent, there could be some repercussions on housing uptake as home loan interest rates will head further north. The rates had already crept up after five consecutive rate hikes over the last year. This will add to the financial burden on homebuyers as apart from home loan interest rates, property prices have also inched up in the recent past two to three quarters,” said Anuj Puri, chairman at property consultancy Anarock Group.
“Given that interest rates may breach the 9.5 per cent mark with today’s hike, we may see some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious. The affordable segment has already been in the doldrums, and adding further to the cost of acquisition does not help,” he added.
Some experts, however, believe that the impact will be short-term and the boost in budgetary allocations towards infrastructure will keep the demand robust.
“There is no denying the fact that the increase in the repo rate would definitely impact housing affordability. The repeated rate hikes may have a short-term impact on overall housing demand and the buyers’ overall acquisition cost would go up. This comes at a time when the real estate sector had shown recovery across important property markets driven primarily by end-users, and this hike may again impact the rate-sensitive sector. However, there is a silver lining as the government has earmarked a huge outlay on infrastructure and is geared towards higher public expenditure as outlined in Budget 2023-24. Additionally, the buying power of consumers has gone up with greater income flow in recent times. Hence, we believe that the demand for the residential segment would remain robust in the near future, any hike in interest rates notwithstanding,” said Ramani Sastri, chairman and managing director (MD) at real estate company Sterling Developers.
The luxury housing segment does not see a significant change in demand as the affordable for that segment is still healthy.
“The hike will not have a significant impact on luxury housing as the demand of home buyers in this segment is beyond these considerations. While the hike has been moderate, the affordability of the home loan is still very good. The luxury real estate has also emerged as a preferred choice for NRIs, HNIs and the uber-rich during the past couple of years,” said Lincoln Bennet Rodrigues, chairman and founder at Goa-based luxury house company, The Bennet and Bernard Company.
When the central bank raises interest rates, borrowing costs for buying real estate increase, which can reduce demand for housing. On the other hand, borrowing costs are lower when interest rates are low, and demand for real estate may increase.
Also, an expansionary monetary policy, which increases the money supply, can lead to increased consumer spending and borrowing, potentially driving up demand for real estate.
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