The Reserve Bank of India’s decision to raise the repo rate could make home loans more expensive and influence residential property purchases during the ongoing festive season, particularly among budget-conscious buyers.
The RBI increased its benchmark repo rate by 25 basis points to 5.50 per cent on Wednesday, marking its first hike in nearly four years. The central bank has also indicated that rate reductions are unlikely in the immediate future.
Real estate consultancy Anarock said residential prices have risen 7 per cent year-on-year, while higher borrowing costs could make prospective buyers more cautious. The impact is expected to be more visible in affordable and price-sensitive segments, where even a small rise in equated monthly instalments (EMIs) can lead buyers to reconsider budgets or postpone purchases.
“The rate hike will put pressure on consumer sentiment and discretionary spending – this has a direct correlation to housing demand. The festive season is a key period for housing demand, and an increase in borrowing costs will affect buyer sentiment,” Anarock Group Chairman Anuj Puri said.
He added that higher EMIs could prompt affordable housing buyers to delay decisions or reassess the amount they are willing to spend.
Industry bodies CREDAI and NAREDCO also expect the increase in borrowing costs to have some effect on housing transactions. CREDAI National President Shekhar Patel said the move could influence the cost and availability of funds as the industry enters an important sales period.
“We are also entering the festive season, which is an important period for the housing market, and the increase in borrowing costs could have some impact on sales during this period, although the underlying demand for housing remains strong,” Patel said.
“We should understand that for a homebuyer, the interest rate at any particular point is only one part of a much longer decision,” he added.
“A home loan is generally a commitment of at least 15 years. During that period, there will be times when rates go up and times when they come down. We should not look at [repo rate changes] in isolation. What matters is the long-term outlook for the economy and overall growth,” he further said.
NAREDCO President Parveen Jain expects the impact to remain limited.
“We expect the impact of this increase on the residential market to remain limited, supported by strong buyer sentiment, festive demand and the long-term need for homeownership,” Jain said.
Meanwhile, Punjab National Bank, Indian Bank, Bank of India and Bank of Baroda have raised their lending rates following the RBI decision.
Source: Mid-day
