Repo Rate Hike Will Impact The Housing Sector

The Reserve Bank of India’s (RBI) decision to raise the repo rate by 25 basis points on Wednesday should worry the housing sector which is currently facing a downturn.

Several banks have already hiked interest rates for deposits and lending. Even the central bank’s decision to revise the eligibility criteria for housing loan limits under the affordable housing scheme is unlikely to cheer up the sector, say real estate and housing sector observers."Any increase in the rates will impact the sales momentum of new homes," says Anuj Puri, Chairman, Anarock Property Consultants.

The rate hike announcement was made by the central bank’s six-member monetary policy committee, amid oil price rise and exchange rate depreciation, even as food inflation is expected to accelerate despite good monsoon forecasts.

According to Abheek Barua, chief economist, HDFC Bank, “this is not likely to be the end of hike cycle”, and in such a scenario, home loan seekers will seriously need to introspect their future purchase plans.

A senior SBI Housing Loan executive, on the other hand, has suggested that home buyers should explore all kinds of options, including pre-payment and refinancing.

The increased interest rates will not only effect the housing sector, but will also impact other allied sectors like steel, iron and cement which form part of the construction business.  Niranjan Hiranandani, President, National Real Estate Development Council (NAREDCO), said, that the hike of 25 basis points in the repo rate “would not make a major difference to real estate,” but in the long run, “we would prefer the rates to come down”.

Jaxay Shah, National President of Confederation of Real Estate Developers’ Association of India (CREDAI), fears the worst. He said interest rate hikes could result in “suppressed growth” in the Indian real estate sector.

On Wednesday, the central bank revised the eligibility criteria for low cost housing, from Rs 28 lakh to Rs 35 lakh in metro towns with a population of 10 lakh and above. It reduced loan rates from the existing Rs 25 lakh to Rs 20 lakh for other centres. A circular is scheduled to be issued end of this month.