Through six successive hikes since May, the central bank has raised policy rates by cumulative 250 basis points taking the repo rate to 6.5%. It had hiked the rates last February making loans expensive.
This has resulted in added financial burden and burgeoning costs for the sector that has linkages with more than 260 ancillary industries. Housing loans interest rates also now hover around 9% from a record low of 6.6% a year ago. Affordable housing, which is more sensitive to interest rates, has already started slowing down.
Developers have expressed concerns over a potential hike in the repo rate by the RBI in its upcoming monetary policy committee review next week.
“In the last 1 year, the cost of construction has risen rapidly due to the gradual increase in repo rates by the RBI, which has adversely impacted many developers as they struggle to cope up financially. Another repo rate hike would not only make certain projects financially unfeasible, but it would also deter homebuyers as home loan rates will be at an all-time high,” said Harsh Vardhan Patodia, President CREDAI.
Acknowledging the support RBI has lent to the industry in the past, especially during peak covid, CREDAI is highlighting the need for a lower repo rate by stressing on the strong GDP growth numbers that India could achieve during 2021- 2022, according to him, enabling a win-win situation for all stakeholders involved.
CREDAI has highlighted that another hike in the repo rate would lead to even higher borrowing costs for developers and make it a more challenging lending environment. This would ultimately lead to even higher project costs and housing prices, on the back of prices already increasing by 5-6% in the last one year.Rising raw material costs and financial burden may make certain projects financially unfeasible, the body said.
It has emphasized the direct correlation between repo rate and the country’s GDP growth, pointing to the period from March 2021 to March 2022, where the repo rate was hovering around 4-4.4%, leading to one of the strongest eras in the Indian economy, with a GDP growth of 8.95% in that period.
Homebuyers, too, will face higher, almost double-digit home loan rates with a potential repo rate hike, which could further deter them from purchasing a property, especially in tier I cities. This could lead to a slowdown in the real estate market and result in homebuyers postponing their purchase plans, reversing a trend in the post covid era wherein homebuying was on the rise.
In 2022 the Indian real estate market experienced a resurgence across all three sectors—residential, office, and retail—for the first time in a decade, showed the data from Knight Frank India.
Housing sales touched a near decade high, and office space absorption also recorded its second-best year in 2022, overcoming the challenge of work-from-home and hybrid work options.
The country’s top eight property markets saw sales of over 3.12 lakh apartment units in the year, an on-year growth of 34%. New home launches rose 41% with the addition of 3.28 lakh units, according to data from Knight Frank India. The Mumbai property market led residential sales, followed by the National Capital Region (NCR) and Bengaluru.
