Rate Hike Will Crush Green Shoots Of Recovery In Housing Sector
The repo rate hike of 0.25 per cent will crush the green shoots of recovery in the housing sector. Just when real estate prices had stabilised and customers were returning to the market, the Reserve Bank of India has increased the repo rate to 6.25 per cent, which will make home loans costlier.
The repo rate is the rate at which RBI lends money to the banks and when this is hiked, banks increase the rate they charge from borrowers. Banks, including SBI, PNB, ICICI Bank, Kotak Mahindra, Union Bank and lender HDFC have already increased home loan interest rate hike twice this year – in April and earlier this month – by 0.10 per cent each.
This increase in the policy rate will delay the revival of the country’s housing market, which after suffering a prolonged period of the slump has just begun to show early signs of improvement on account of an uptick in affordable housing, Chairman and Managing Director, Knight Frank India said.
Managing Director, Colliers International India, said the potential increase in interest rates will adversely impact developers as well as home buyers. Not only does the cost of funds for developers increase, the hike can impact the velocity of sales as fence-sitters will see this as another reason to postpone their home buying decision. In the past, developers have tried to get sales boosted by throwing in more goodies/ offers, but these schemes have had limited success.
The bi-monthly monetary policy has also revised the housing loan limits for priority sector lending or PSL eligibility from Rs 28 lakh to Rs 35 lakh in metros and from Rs 20 lakh to Rs 25 lakh in other centres, provided the overall cost does not exceed Rs 45 lakh and Rs 30 lakh, respectively. However, houses within this price range are difficult to find in metros such as Mumbai and Delhi.
Managing Director at Liases Foras said the real estate market has been struggling for some time. Though there is a revival driven by the government’s home loan interest subvention scheme, developers need to broaden the incentives to attract buyers. The developers will have to adjust this increase in cost (due to home loan rates hike).
The RBI’s decision to hike the repo rate poses an inflation risk. Keeping in mind the revival of the realty sector owing to the various policy reforms, a rate cut would have complemented the government’s initiatives. We hope this is a short-term hike in rates, MD, Puranik Builders, said.
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