Close on the heels of the Reserve Bank of Indias (RBI) recent hike in repo rate by 40 basis points, besides giving indications it would raise further in the upcoming monetary policy review meets, several Indian lenders too have raised their lending rates.
On Wednesday, lending major HDFC and PNB Bank raised their lending rates by 5 basis points and 15 basis points, respectively.
The upward revision in rates will essentially lead to an increase in EMIs for borrowers.
Recently, the State Bank of India (SBI) and Bank of Baroda also hiked their lending rates across various tenures, as per reports.
At the same time, the government also waived customs duty on the import of some raw materials, including coking coal and ferronickel, used by the steel industry. Steel is a key input for the real estate industry.
Here’s what some of the developers and domain experts have to say on the impact of rate hike on the realty sector and its demand:
Vivek Rathi, Director, Research at Knight Frank India
An increase in home loan interest rate by 1 per cent reduces house purchase affordability by 7.4 per cent. We are on a landscape of rising interest rates and increasing property prices, which will put pressure on affordability if they move beyond income growth.
At the current juncture, strong income growth is supportive of homebuyer affordability. Hence, a comfortable affordability level coupled with the renewed enthusiasm for home ownership shall help maintain the strong housing sales momentum in the near term.
Dharmesh Shah, CEO of Hero Realty
The retail buyers in the home segment have seen an incredible increase post-pandemic. Despite an increased interest rate the market is expected to be buoyant but this increase has come at the wrong time.
The home buyer segment needs a pat on the back and not an increase in the interest rates. However, this also considerably marks a sense of stability as the end of low-interest rates will bring the serious buyers back in focus.
Sanjay Sharma, Director, SKA GROUP
At a time when the real estate sector had just begun to pick up, the increase in home loan interest rates, even though negligible, would act as a psychological barrier for the buyers. Coupled with the increase in input costs that to an extent had forced the developers to increase in prices, it would act as a dampener to the buyer’s spirit, especially the ones looking for homes in the affordable segment.
Nayan Raheja, Raheja Developers
The increase in interest rates by banks could not have come at a worse time. With buyers shaking off the negative spirits of the pandemic and seeking to benefit from the historic low costs of the dwelling units as well as historic low home loan interest rates, the move by the banks would definitely have an impact on buyers’ sentiments. Further, it will affect the real estate sector that had begun to pick up pace after a gap of two to three years and which among others is one of the largest generators of employment. Most of all it will also signal that the days of low home loan interest rates are over.
Sachin Gawri, CEO and Founder Rise Infraventures Limited
The news of interest rate hikes by the banks especially after RBI had raised the base rates were a foregone conclusion. However, I wish that the banks had waited for a few more months for this series of hikes. At least it could have waited for the real estate sector to pass on the benefits of the reduction in fuel prices and the decrease in the price of iron (through hike in export duty) to the customers. The move will also affect the development of the commercial and retail segments.
Deepak Kapoor, Director of Gulshan Homz
The current hike in home loan interest rates by banks will surely convey to home buyers that interest rates are only going to go northwards. Contrary to the popular perception that any such increase only affects the affordable housing segment, the move, according to me, will also leave a big impact in the big-ticket luxury segment that involves high volumes of money, hence higher EMIs and higher interest amount. Besides, since one of the banks had increased its RPLR three times in one month, the move will also add to the uncertainty regarding the quantum of hikes in the future.