The Reserve Bank of India (RBI), on September 30, 2022, increased its repo rate by 50 basis points due to the rise in retail inflation above its tolerance level and the Indian rupee breaking the 80 per cent mark against the US dollar.
The six-member monetary policy committee, headed by Governor Shaktikant Das, is seen to increase its hawkish tone to cut growth to curb high inflation. The real estate industry in India will likely be among the most affected.
RBI repo rate hike
The widely-anticipated move of the Indian banking regulator could lead to an increase in loan-to-homeowners rates. Most home-purchase choices are likely to end with the holiday season beginning on September 26, 2022, the first day of the nine-day celebrations called Navratra. It is known that the RBI has already raised repo rates by 140 basis points from May to 5.4 per cent. In the aftermath, many banks operating in India have already raised the interest rates on home loans at times, some even multiple times, so they are now above 7 per cent.
In light of the shifting global policy landscape, experts predict that the rate hike will continue for at minimum two policy announcements.
The Impact and after effects
Remember that the RBI had last cut its repo rates in March 2020 to mitigate the effects of the slowdown caused by Covid and maintained the current benchmark rate for nearly two years before raising it in May 2022. Retail inflation has risen to 7 per cent, and the rupee has declined 9.5 per cent over the past year since the last meeting in August.
“The rate hike could impact the sentiment towards real estate when buyers likely invest in the homes of their dreams during the holiday season. The interest rates on home loans could rise now, causing the short-term volatility of overall housing demand.”
The recent repo rate hikes have already increased buyers’ overall cost to purchase. With increasing loan rates, the fear of homebuyers may begin to set in, and they may take on the wait-and-watch mindset,” says Ramani Sastri, the Chairman and MD of Sterling Developers.
“RBI’s choice to increase the interest rate to combat the rising costs and to ensure economic recovery in the US was a simple decision. The sudden increase in rates three times within a concise time frame could impact the attitude of prospective home buyers since low-interest rates are one of the major factors in the rise in homebuyers over the past two years.
We are hoping we can see that there is a chance that the State Government will step in to ease the burden of homebuyers by reducing stamp duty to improve the mood in the holiday period,” said Pritam Chivukula, co-founder and director of Tridhaatu Realty, and treasurer-CREDAI MCHI.
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