Pause in rate hikes to instill a sense of optimism among borrowers

As widely expected, the Reserve Bank of India (RBI) kept the repo rates unchanged at 6.5% in its monetary policy on Thursday. This will give some respite to the prospective homebuyers looking to avail home loans in the near future.

Industry experts believe the unchanged repo rate can help maintain the momentum in housing sales, which have so far been firing on all cylinders in 2023.

“As per ANAROCK Research, we saw housing sales in the first quarter of 2023 scale new heights, breaching the one lakh mark at 1.14 lakh units across the top 7 cities. Given the current unchanged rates, the outlook for those looking to buy their first home via a home loan soon remains favourable. Interest rates from most banks will continue in single digits. With top banks, they currently hover between 8.7% and 9.65%,” said Anuj Puri, Chairman, ANAROCK Group.

Anurag Mathur, CEO, Savills India, has similar views. “As home loan EMIs will remain unchanged in the near term, residential real estate should witness sustained demand across categories. Developers with debts on their balance sheets stand to benefit as long as the monetary policy finely balances inflation and growth prospects. However, market experts should remain vigilant, as policy normalisation across the world including India is expected to take at least a few quarters,” he said.

Also Read: RBI keeps repo rate unchanged: How this will impact homebuyers

The RBI has maintained the policy rate at 6.5% for the second consecutive time, following a series of six consecutive rate hikes. Its decision reflects its cautious approach in light of the persistent inflationary pressures and their potential impact on domestic consumption growth.

However, “the positive aspect is that the pause in rate hikes will instill a sense of optimism among borrowers and and we expect the housing sales momentum to continue,” said Amit Goyal, Managing Director, India Sotheby’s International Realty.

As home loan rates are already at elevated levels of 9% and above, this is a significant breather for lenders, developers & homebuyers.

“First-time homebuyers will be better placed to make their home buying decision in a stable lending rate regime. Fence sitters in the affordable & mid segment will have greater visibility of their EMIs & thus effect buying,” said Vimal Nadar, Head of Research at Colliers India.

Piyush Bothra, Co-founder and CFO, Square Yards, said, “The Reserve Bank of India’s decision to maintain the status quo for the second time is a welcome move and in line with the expectations. This affirms the view that interest rates will only have one direction which is downwards. This is a big positive for home buyers as they know that their EMIs down the line will only decrease further. A lot of fence sitters are expected to jump in, and the developers are likely to cash in on this pent-up demand. We firmly believe that we are at the beginning of a multi-year real estate bull market buoyed by high disposable incomes, high affordability and moderate-to-low interest rates.”

However, a future rate hike, if any, may push the rates into double digits. The persisting financial instabilities in advanced economies of the world may have repercussions in India, causing the RBI to take such a step to face these headwinds.