The Reserve Bank of India (RBI), for the first time in over four years raised the repo rate, or the short-term lending rate, by 0.25 per cent to 6.25 per cent, on inflation concerns, arising from the surge in oil prices. NAREDCO national president Niranjan Hiranandani said the hike is justified, on account of inflationary trends, global hardening of interest rates, as also petroleum prices moving upwards. “It will not make a major difference to real estate. However, in the long run, we would prefer rates coming down,” he said.
Property consultant JLL India’s chief executive officer and country head, Ramesh Nair, said the hike may seem to dampen sentiments in the market but in terms of real estate, may have little or no impact.
“As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of the residential real estate sector much and tends to balance out over the long term,” he reasoned.
While the rate hike might result in banks raising their home loan rates, the central bank has given the borrowers something to cheer, by increasing the priority sector lending (PSL) slabs, which is likely to make low-ticket sized loans cheaper. Home loans up to Rs 35 lakhs in metros (with population of 10 lakh and above) will now qualify for the benefits of priority sector lending, against up to Rs 28 lakhs earlier. Similarly, loans up to Rs 25 lakhs will now qualify under PSL for other centres, compared to up to Rs 20 lakhs earlier. However, the house cannot cost more than Rs 45 lakhs in a metro and Rs 30 lakhs in other centres.
See also: RBI announces hike in limits for cheaper loan for affordable housing
Pankaj Bajaj, president of the NCR chapter of builder’s body CREDAI, feels that the 0.25 per cent change in rates is not significant enough, to sway the purchase decision of a prospective urban family, which is thinking of buying a home. “The government has made a number of other interventions in the last one year, to revive housing demand. I do not think a marginal rate hike would have too much of an impact. Home loan rates are still quite attractive,” he said.
However, according to PropEquity chief executive officer and founder Samir Jasuja, the hike in the policy rates may adversely impact the positive momentum witnessed in the realty sector, in the last few months. The sector had started to slowly improve, witnessing a 48 per cent jump in new home sales in the March quarter, according to Jasuja. “Banks may further hike the borrowing rates for home loans, further pushing the home buyers to the fence. However, we expect customer demand to stay solid in the mid-income and affordable housing segment, especially for projects by fundamentally sound developers which are nearing completion,” he said.
Echoing similar views, Knight Frank India chairman and managing director Shishir Baijal, said the increase in policy rate will delay the revival of the country’s housing market, which, after suffering a prolonged slump, has just begun to show early signs of improvement, on account of an uptick in affordable housing. Meanwhile, the apex bank also observed that the level of bad loans for the ticket size of up to Rs two lakhs, has been high and is rising briskly and it might tighten norms by increasing the loan-to-value ratio and risk weight.
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