The Reserve Bank of India (RBI) has raised its benchmark interest rate, leading to concerns among real estate players about the potential short-term impact on the market. The recent rate hike is expected to increase borrowing costs and reduce demand for housing, leading to a slowdown in investment in property development.
Although, the hike in the short-term lending and borrowing rates by the Reserve Bank of India (RBI) would not impact the real-estate sector, according to analysts. The hike in repo and reverse repo rates may lead to increase in housing loan interest rates but will not affect buying capacity, as house buyers are more concerned over skyrocketing property prices rather than rising interest rates, a number of industry observers told Moneylife.
Higher interest rates increase the cost of borrowing for potential home buyers, making it more difficult for them to secure a loan. This reduction in demand for housing can lead to a decrease in property prices, which could impact the profits of developers and builders. In addition, higher interest rates can also discourage investors from entering the market, further exacerbating the slowdown in investment in property development.
Despite these short-term challenges, the long-term outlook for the real estate sector remains positive. A stable interest rate environment is crucial for boosting investor confidence and contributing to a more sustainable real estate market. This, in turn, can attract more investment and help to drive growth in the sector.
“The outrageous hike of 250 basis points since May 2021 needs to be warranted before it turns negative for the ascending Indian economic growth curve. The impact of the home loan interest rates hike will be highly deterrent in the affordable housing segment as it will impact the price-sensitive homebuyers and fatigue the supply of the developers. The luxury and mid-housing segment players will remain cautious with a bit longer sales cycle,” Niranjan Hiranandani, managing director of Hiranandani Group and National Vice-Chairman, NAREDCO said.
“The rates had already crept up after five consecutive hikes over the past year. This will add to the financial burden on homebuyers as apart from home loan interest rates, property prices have also inched up in the past two to three quarters. Given that interest rates may breach the 9.5% mark with today’s hike, we may see some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious. The affordable segment has already been in the doldrums, and adding further to the cost of acquisition obviously does not help,” he said.
It is important to note that the impact of the interest rate hike on the real estate sector will also depend on various other factors, such as economic growth, consumer sentiment, and the availability of affordable housing. The real estate sector is expected to continue to grow in the coming years, but players in the industry may need to adjust their strategies in response to the current economic conditions.
In conclusion, the recent interest rate hike by the RBI is expected to have a short-term adverse impact on the real estate sector. However, the long-term outlook remains positive, and the sector is expected to continue to grow in the coming years. The real estate players will need to be mindful of the changing economic conditions and adjust their strategies accordingly in order to remain competitive.
