RBI Repo Rate: Rate Hike Pause At 6.5% A Win-Win For Homebuyers, Realty Sector, Say Experts

As the RBI maintains the status quo on the repo rate, there’s a likelihood that the interest rate on home loans will not see any upward spike, thus offering some respite to existing and new home loan borrowers. This could also lead to growth in home demand, thus auguring well for the real estate sector, too
Repo Rate Hike Will Impact The Housing Sector
Repo Rate Hike Will Impact The Housing Sector

The Reserve Bank of India (RBI) on December 8, 2023 announced its decision to maintain the repo rate at 6.5 per cent for the fifth consecutive time, highlighting its commitment to closely monitor inflation.

“The Reserve Bank of India’s Monetary Policy Committee (MPC) after a detailed assessment of the evolving macroeconomic developments, has decided unanimously to keep the repo rate unchanged at 6.5 per cent,” RBI Governor Shaktikanta Das said, amid India’s exceeding growth expectations.

The last revision to the repo rate happened in February 2023, when it was increased to 6.5 per cent following a 0.25 per cent basis point increase. The hikes in repo rate were initiated in May 2022 following a global hike in inflation on the back of geopolitical tensions. According to experts, extending the pause on key rates will bring relief to borrowers, particularly in managing debt and household expenses.

What Is Repo Rate?

The repo rate is the rate at which the RBI lends money to commercial banks. When the repo rate is high, banks have to pay more to borrow money from the RBI, and this cost is passed on to customers in the form of higher interest rates on loans. Conversely, when the repo rate is low, banks can borrow money at a lower cost and offer loans at a lower interest rate.

Expert Views: According to experts, the fundamentals of the Indian economy is strong and the recently announced gross domestic product (GDP) rates also indicate a positive outlook. The RBI’s decision is likely to benefit the real estate sector, and especially homebuyers.

Says Dilshad Billimoria, certified financial planner and managing director, and principal officer of Dilzer Consultants, a financial planning firm: “Residential and commercial real estate will benefit from stable interest rates. This will help homebuyers in the mid-segment a lot. Due to inflation being in check, the economy growing at a fast pace, and sufficient liquidity in the market, this decision has helped homebuyers with some stability on their outflows.”

Anuj Puri, chairman, Anarock group, said in a statement: “This is an extension of the festive bonanza that the RBI gave to the homebuyers in its last policy announcement. It gives homebuyers yet another opportunity to make cost-optimised home purchases. If we consider the present trends, the housing market is on a bull run and unchanged home loan rates will only add to the overall positive consumer sentiments. Additionally, given that housing prices have escalated across the top seven cities in the last year, at least the unchanged home loan rates will give some relief to the homebuyers.”

Homebuyers are currently facing high interest rates on their home loans. Home loans are a long-term commitment and even a small reduction in the interest rate can translate into significant savings over the loan tenure.

As the repo rate skyrocketed from 4 per cent to 6.5 per cent over the last 20 months, the debt burden of home loan borrowers ballooned, as equated monthly instalments (EMIs) increased and loan tenures extended, sometimes well beyond retirement age.

The BankBazaar Aspiration Index, an annual study that studies key aspirations of people, year-on-year, revealed that more than half of the survey’s respondents saw their interest rates rise by 1-3 per cent and their EMIs go up by approximately Rs 2,000-10,000.

“On average, borrowers who started their loans with an average interest rate of 7 per cent have seen it go up to 9.5 per cent following the rate hikes. EMIs, too, have gone up by Rs 158 per lakh, from Rs 775 to Rs 932 per lakh. To combat the pressure of the rate hikes, existing borrowers can explore switching to lower home loan rates and continue to prepay a part of the loan to reduce the burden,” says Adhil Shetty, CEO, BankBazaar.com, a financial services website, in a statement.

Anshuman Magazine, Chairman and CEO - India, South-East Asia, Middle East & Africa, CBRE, said in a statement: “A sustained GDP growth forecast and a manageable inflation has helped RBI to maintain the status quo on key policy rates. The pause on the interest rate is expected to push sentiments further for homebuyers, and this continued pause in rates is likely to boost the real estate sector significantly. Expected inflation within the comfortable range will further rekindle the hope of a declining rates regime.”

Atul Monga, CEO and co-founder, Basic Home Loan, said in a statement: “The RBI’s choice to keep repo rates the same will affect home loan interest rates in different ways. On the good side, a steady repo rate means RBI is still supporting economic recovery. This might make banks keep offering good home loan rates to boost housing demand. But because of inflation, banks might be careful and not lower rates too much. People looking for homes can still find affordable options, but the rates might not go down a lot. It’s a good idea for potential homebuyers to watch the market and think about refinancing to take advantage of good lending conditions and get the most financial benefits in the changing interest rate situation.”

According to experts, the pause in policy rate augurs well for the residential real estate sector. The economy is looking robust with high investments across businesses in recent times. A recovery in property prices and a rise in yields have made residential properties attractive yet again, thus contributing to increased demand in the sector.

Ramani Sastri, chairman and managing director, Sterling Developers, said in a statement: “The long-term benefits of owning a home have led to sustainable growth in the segment and we see this up-cycle continuing in 2024. An increase in earning potential, end user-driven demand, a need for a better standard of living, and the growing base of aspirational consumers and their lifestyle changes have led to substantial demand and growth in the sector. With economic growth, the premium housing segment will continue to witness higher demand in the future. Going forward, there can be a further uptick in demand with a reduction in rates, making it even more enticing for prospective homebuyers and bolstering overall market confidence.”

He added: “We are also expecting significant growth shortly, building on the success of this year and the continued strong demand in the real estate sector driven primarily by burgeoning aspirations. We will continue to see a multi-fold growth in real estate investments, since the real estate market is less volatile than other investment markets and delivers higher returns. Overall, consumers are keen to buy homes, as stability and security are on top of their mind now and the recent past has been a testament to the fact that home buyer confidence is at an all-time high.”

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