As inflation continues to remain high, the Reserve Bank of India (RBI) hiked lending rate again - increasing downside risk of impacting housing demand. With home loan interest rates are set to surge again, industry experts and realtors are now expecting fence-sitters to move out of the market - impacting short term demand.
According to analyses by JLL India, after today’s 50 basis points repo rate hike by the RBI, home loan interests may go up by at least 20-30 basis points. This will be over and above the 80 basis points average hike in home loan interest rates that homebuyers have faced since May - taking the total hike to 100-110 basis points (or 1-1.1 per cent). As a result, the homebuyers are expected to see 8-9 per cent rise in their equated monthly instalments (EMIs).
“With today’s hike in repo rate, the revised home loan EMI would increase by an average of 8-9 per cent as compared to 6 months back. The continuous rise in home loan EMI is hence, expected to act as a sentiment disruptor. We believe that home loan interest rates inching towards 9 per cent and above may result in moderation of housing sales growth in the medium term, especially post the current festive season,” said Dr. Samantak Das, chief economist, and head of research and REIS, India, JLL.
Shishir Baijal, Chairman & Managing Director, Knight Frank India said, it will impact the sentiments across all buying categories in the wake of the current festive season. “Tight liquidity conditions would lead to a significant rise in the cost of funding, impacting home loan rates as well. A rise in home loan rates will further impact affordability across the markets. As per Knight Frank affordability index will deteriorate by another 2 per cent. This might slowdown home buying decision for a short to medium term,” he said.
As per ANAROCK's recent consumer sentiment survey, at least 61 per cent respondents consider high inflation as a major concern for them, seriously impacting their disposable incomes. “The hike in home loan rates will be in addition to the other increasing costs such as cost of construction. With the overall acquisition cost (of homes) increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter,” said Anuj Puri, Chairman - ANAROCK Group.
According to Saransh Trehan, Managing Director of realtor Trehan Group, there is still reason to be optimistic about lower impact of the consecutive rate hikes on demand for homes. But, he says, any further hikes will impact demand.
Ramani Sastri - Chairman & MD, Sterling Developers expects short-term turbulence on overall housing demand. “With gradually increasing loan rates, homebuyers’ apprehension could set in quickly and they might adopt the wait-and-watch sentiment. Subsequent rate hikes will also mean a deterioration of affordability as low interest rates have been the biggest factor in the resurgence for real estate demand in the last few years,” said Sastri.
According to market experts like Dr. Das from JLL India, to reduce the burden on homebuyers during the festive weeks, when home sales surge significantly, lenders like banks may delay the home loan rate increases.
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