If the Reserve Bank of India (RBI) continued to increase its benchmark lending rate in future monetary policy announcements, India’s real estate sector would be adversely affected, industry body CREDAI has said.
The comment by the industry body came after the banking regulator on September 30, 2022, increased the repo rate by 50-basis points to 5.90%. Repo rate is the benchmark rate, based on which banks in the country offer housing loans. They charge a premium, often in the range of 2-3%, over and above the repo rate to offer home loans.
“We had expected a rate hike by 2% by December, but with the latest round of hike of 50 basis points, the cumulative interest rate rise is 1.9%. It has come 2-3 months earlier than our expectations,” Credai West Bengal president Sushil Mohta.
“Any further rate hike in the near term will put a brake on the revival of the real estate sector, which has a huge contribution to the economy,” Mohta added.
Banking experts are of the view the RBI would increase the repo rate by another 35-basis points in its upcoming policy review in December 2022.
(100 basis points are equal to one percentage point.)
“We believe that a 35-bps rate hike in December looks imminent, but beyond December it would be a touch and go,” public lender SBI said in its Ecowrap report titled, RBI Rate Hike Cycle Could Extend Till Dec: A Higher Terminal Rate Coupled With A Lower GDP Growth In FY 24 To Provide Buffer For A Rate Reversal Cycle?
Hours after the RBI announced the rate hike, many banks in India, including SBI and HDFC, increased their home loan interest rates by 50 basis points. With this most banks will now be offering loans at over 8% interest at a time when the festive season is up in the industry.
“The real estate sector’s contribution to the country’s GDP was 7% in 2019-2020, and it will be 10% by 2030, contributing about $1 trillion to the economy, as per government projection. But, the interest rate scenario will be a key factor in this journey,” said Mohta.
