The real estate sector fears a slowdown due to rising rates

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As the RBI pushes the repo rate at which it lends to commercial banks by another 50 basis points, real estate players have begun to fear that the central bank’s decision could cause disruption and a slowdown in the short term. sector term, and the ripple effect could be seen in the upcoming holiday season.

Over the past three months, the apex bank has increased the repo rate by 1.40 percentage points to 5.40%, well above the pre-pandemic level of 5.15. %. Banks also followed the RBI rate hikes and adjusted their lending rates accordingly. Now, with this hike, consumers will be hit even harder, as their interest rates on loans have already been raised several times over the past few months.

Real estate players believe that the subsequent transmission of rates by banks should begin to slow the pace of growth in residential real estate.

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Following May’s surprise repo rate hike, mortgage rates have already risen from all-time lows that have helped major property markets rise above pre-Covid levels and record record sales , according to an ET report. With interest rates tightening, real estate agents will now have to provide offers to stimulate and maintain demand momentum.

“Because mortgage borrowing is flexible in rate, soaring short-term interest rates will certainly hurt homebuyer sentiment, but it will average the cost out positively in the long run. Developers are aware of the inflationary pressure that s ‘accumulates with the spiral of economic discord and will come up with sweeteners on the back of the festive winds,’ said Niranjan Hiranandani, National Vice President of NAREDCO.

For consumers who were paying an interest rate of 6.7% before May – the month RBI raised the rate by 40 basis points, some banks have already raised that rate to 7.8%. With this third upward revision of the repo rate by the RBI, banks are expected to raise their rates further in the coming days.

“The likely pass-through of another 30-40 basis point increase in home loan rates could cause a mid-cycle slowdown for the residential sector and likely have a ripple effect on the upcoming holiday season. This could disrupt the sales growth momentum in the short term,” said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL. “This is, however, a note of caution and not a reflection on the overall health of the residential sector, with medium to long-term growth prospects remaining intact.”

India’s residential sector is in the midst of a prolonged and sustained growth cycle very similar to the 2010-2012 period, but more driven by actual market fundamentals in terms of homebuyer demand, according to the ET report. In fact, sales in the first half of 2022 (January-June) were the highest in more than a decade over the same period of comparison and just after the first half of 2010.