Realtors See Rise In Home Loan Rate; Demand For Affordable, Lower Mid-Income Housing May Be Hit

Continuous increase in interest rates will dampen the sentiment of borrowing for individuals and businesses alike
home loans
home loans

The RBI's decision to hike repo rate by 25 basis points will result in an increase in interest rates on home loans and may impact demand for affordable and lower mid-income housing segments, according to property developers and consultants. However, many industry experts said strong demand momentum in the residential segment would remain intact while some said there would not be much impact.

Real estate industry also hoped this to be the last round of hike in the repo rate. Commenting on the RBI policy, realtors' apex body CREDAI National President Harsh Vardhan Patodia said the continuous increase in interest rates will dampen the sentiment of borrowing for individuals and businesses alike. NAREDCO National Vice Chairman Niranjan Hiranandani said, "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 would be highly a deterrent in the affordable housing segment, he added. Real estate consultant Anarock Chairman Anuj Puri said, "With repo rates now at 6.5 pr 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."

Pointing out that interest rates may breach the 9.5 per cent mark after this hike, Puri said there might be some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious. Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Ltd, said, "From a real estate standpoint, the rate hike will push the home loan interest rate further. As a result, a slowdown in the home buying sentiment may be witnessed in the upcoming quarters." Developers should seek to offer financial assistance for the homebuyers to balance the business dynamics and give a boost to the ongoing momentum, he advised.

"However the demand fundamentals remain strong as they are linked to job confidence," Dutt said. Dhruv Agarwala, Group CEO,, said banks would pass on the 25 basis point hike to homebuyers in the form of increased home loan rates, still the borrowing rate for home buyers will continue to remain within a comfortable zone.

"Home buyer sentiment is strong and we don't see this hike derailing the strong momentum in the residential real estate market," he added. Atul Banshal, Director Finance, Omaxe Ltd, said there will be a short-term impact on the mid-segment and affordable housing. The repeated rate hikes may have a short-term impact on overall housing demand and the buyers' overall acquisition cost would go up, said Ramani Sastri, Chairman & MD, Sterling Developers. Amit Goyal, CEO, India Sotheby's International Realty, said the increase in repo rate would certainly increase the home loan interest rates, but expected the housing demand to remain intact.

Amit Modi, Director, County Group, said the present hike should not cause much concern, as the quantum is still relatively less. Square Yards Co-founder and CFO Piyush Bothra said the hike would make home loans more expensive, but it still remains lower than the historical home loan rates. "The residential demand is quite buoyant and broad based and the overall homebuying sentiment is expected to remain strong," he said.

Colliers India CEO Ramesh Nair said: "Home loan interest rates are already in the higher bracket of 8-9 per cent in recent times. Further, housing prices are expected to largely remain firm in the upcoming quarters. On the optimistic side, we hope not to foresee a further rise in the repo rate and a resultant increase in loan rates."

The hike in repo rate will not have a major impact on the demand in the medium to long run, said Anurag Mathur, CEO, Savills India. The continuous rise in home loan interest rate is now expected to impact actual sales moving beyond sentiment disruption of home buyers, Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

Ashish Narain Agarwal, Founder of Property, said the increase may lead to short-term volatility in the real estate market with the increase in home EMIs for the buyers. Pritam Chivukula - Co-Founder & Director, Tridhaatu Realty and Treasurer, CREDAI MCHI, said the sharp acceleration of rates consecutively for the sixth time in a short period will have a short-term effect on the sentiment of homebuyers as low interest rates have been the biggest factor in the resurgence for real estate demand in the last two years.

Aniket Bharadia, Co-Founder of PropCatalyst, said: "We have consistently seen rate hikes for last 2 years, which has hurt multiple businesses a lot, especially real estate and allied industries. We look forward to a pause or reduction for at least a year now for the businesses to come out of this tightening monetary policy."

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