Repo rate hike by RBI to make home loans costlier: Experts

New Delhi, May 5: Home loans are set to become costlier after the Reserve Bank of India’s (RBI) decision to hike the policy repo rate by 0.40 per cent, experts said.

In a bid to control inflation, RBI has announced a change in the key lending rates. On Wednesday, the apex bank announced a hike by 40 basis points (bps) in the lending rate. Furthermore, RBI has also announced a rise in the amount of deposits that banks are required to maintain as cash reserve by 50 basis points to 4.5 per cent.

While announcing these measures RBI Governor Shaktikanta Das said that MPC judged that the inflation outlook warrants an appropriate and timely response through resolute and calibrated steps to ensure that second-round effects of supply-side shocks on the economy are contained and long-term inflation expectations are kept firmly anchored.

While this is the first hike in the policy rate since August 2018 but it may have an adverse impact on the real estate sector. After being hit by the pandemic, the sector was on a path of recovery. Experts believe that this hike may thwart the current growth momentum.

“The mid-cycle rate hike by RBI has taken everyone by surprise. The growing inflation rates and the current geo-political environment necessitated this move,” said Vinit Dungarwal, Director at AMs Project Consultants Pvt Ltd.

“From a real estate perspective, this move will dent the current demand momentum and add to the woes of developers. The developers were already grappling with the growing prices of raw materials and this move will make home loans costlier,” Dungarwal added.

Samantak Das, Chief Economist & Head of Research, India, JLL, echoes a similar sentiment.
“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’. However, 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,” Das said.

There are some realtors who still remain optimistic about the current growth run. They believe that this move may push homebuyers that are still deliberating to seal the deal.

“RBI had been maintaining an accommodative stance so far but now it has raised the policy rate by 40 bps to 4.40 per cent. As a result, the SDF rate was increased to 4.15 per cent and MSF rate to 4.65 per cent,” said Aditya Kushwaha, CEO and Director, Axis Ecorp.

“The geopolitical situation caused by Russia’s invasion of Ukraine is weighing on the economy and steps are being taken to mitigate the impact. The current rate increase will have a direct impact on the EMIs but we are still bullish about the real estate sector,” he said.

“We believe that this may also incentivise the fence-sitter to make the most of the current schemes and take the plunge,” Kushwaha added.