Repo rate hike as expected, may further impact affordable housing demand

New Delhi, Feb 8 Real Estate Industry on Wednesday claimed that the repo rate hike by the RBI is likely to impact the demand of affordable housing in the country.

Given that interest rates may breach the 9.5 per cent mark with the hike, the affordable housing segment may see some pressure on sales volumes.

Anuj Puri, Chairman, ANAROCK Group said that the 25 bps rate hike is much along the expected lines.

"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 one 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," he said.

The affordable segment has already been in the doldrums, and adding further to the cost of acquisition obviously does not help, he added.

As per Anarock, the monetary policy impacts real estate demand in several ways. When the central bank raises interest rates, borrowing costs for buying real estate increase, which can reduce demand for housing. Conversely, when interest rates are low, borrowing costs are lower, 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.

Niranjan Hiranandani - National Vice Chairman, NAREDCO echoed the similar view. "Though surplus liquidity will power credit growth in the real estate sector, demand economics may be challenged in the affordable house segment - which is the broad spectrum of the consumption pyramid. The outrageous hike of 250 basis point since May 2021, needs to be warranted before it turns negative for the ascending Indian economic growth curve. The impact of home loan interest rate hike will be highly deterrent in the affordable housing segment as it will impact the price sensitive homebuyers and fatigue the supply of the developers. The luxury and mid housing segment players will remain cautious with a bit longer sales cycle," he said.

It is an accommodative move as per current micro and macro economic conditions globally as well as domestic markets. Controlling inflation is the RBI's mandate, and the apex bank is showing prudence in taking corrective measures to curb rising inflation," Pradeep Aggarwal, Founder and Chairman, Signature Global (India) Ltd.

Amit Modi, Director, County Group, President CREDAI (Western UP) said, "The bank's recent hike of 25 basis points will surely help in controlling the inflationary concerns, but we are also looking forward to a stable interest regime for a long term period to help millions of first time buyers across the country. In our view the present hike should not cause much concern, as the quantum is still relatively less."