RBI Monetary Policy August 2022: Real Estate Outlook



The Monetary Policy Committee (MPC) announced an increase in Repo rate by 50 basis points to 5.4%. NewsBarons connects with Real Estate industry leaders to share their views and opinions on the MPC announcement.

Developers are conscious about the inflationary pressure building up with the spiralling economic discord: Dr Niranjan Hiranandani

www.newsbarons.comIndustry reckons the RBI’s focus on sustainable economic growth with Real GDP forecast at 7.2% for FY23, while continuing its monetary intervention to tame global inflation headwinds by increasing repo rate by 50bps. As the home loan borrowing is at the flexible rate, short term interest rate spike will certainly hurt the homebuyers’ sentiments, but it averages out the cost positively in the long term. Developers are conscious about the inflationary pressure building up with the spiralling economic discord and will chalk out deal sweeteners on the back of festive tailwinds. Industry recommends the continuation of two thong approaches in the way of fiscal as well as monetary intervention to contain the consequential impact due to the global upheavals. Real estate continues to be a good bet for investment with sustainable consumption demand at play even after the interest rate cycle wanes off.

[Dr Niranjan Hiranandani is Managing Director of Hiranandani Group and National Vice Chairman of NAREDCO]

The hike by 50 bps is definitely on the higher side: Anuj Puri

www.newsbarons.comA rate hike was expected, but the expectation was for a maximum of 35 bps. The hike by 50 bps is definitely on the higher side, and home loan lending rates will now edge further into the red zone.

This is the third consecutive rate hike in the last two months and finally marks the end of the all-time best low-interest rates regime – one of the major factors that drove housing sales across the country since the pandemic. This whammy comes along with the inflationary trends of primary raw materials, including cement, steel, labour, etc., that have recently led to a rise in property prices. Together, these factors – rising home loan rates and construction costs – will impact residential sales that did reasonably well in the first half of 2022. As per ANAROCK Research, approx. 1.85 lakh units were sold in H1 2022 across the top 7 cities.

The repo rate now stands at 5.4%, thus reaching the pre-pandemic levels. While inflation has partially eased as compared to the surge in April, it continues to be above the RBI’s target.

[Anuj Puri is the Chairman of ANAROCK Property Consultants]

Developers are expected to undertake mitigating measures to soften the blow on homebuyer affordability: Shishir Baijal

www.newsbarons.comThe RBI’s decision to raise the REPO rate by 50 basis point is in line with our expectations. The RBI has been compelled to take steps to control India’s Consumer inflation which has remained above the tolerance level of 6%. So far the commercial banks have transmitted the policy rate hike to the borrowers, resulting in an increase in lending rates across all the sectors including real estate. Today’s rate hike will further harden the rates.

In terms of liquidity, the measures have cut the extent of liquidity window. However, adequate liquidity is managed, and improved manufacturing capacity utilisation will be supportive of credit growth going forward. For the real estate sector specifically, the third subsequent rate rise will mean a deterioration of affordability and may impact the sentiments of home buyers. With the cumulative rate hike until today, assuming complete transmission, a prospective home buyers’ affordability shrinks by around 11% i.e. from an ability of purchasing a house of Rs.1 crore value shrinking to Rs. 89 lacs now. Developers are expected to undertake mitigating measures to soften the blow on homebuyer affordability. The increase of interest rates and the subsequent transmission of these into the home loan rates, while has the capability of impacting demand, we hope that the latent demand for housing will soften the impact of the latest change in the REPO rates.

[Shishir Baijal is the Chairman & Managing Director of Knight Frank India]

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Higher home loan rates could dent homebuyers’ sentiments: Ramesh Nair

www.newsbarons.comRBI hiked the repo rate for the third time in a row by 50 bps to 5.4% as the government tries to control inflationary pressures. With this, the repo rate has now increased by 140 bps in the last 3 months, with the rate hovering above pre-pandemic levels. Domestic economic activities remain resilient despite the challenging global financial and geopolitical environment, leading to the withdrawal of the accommodative stance by the RBI. The RBI kept its growth target unchanged at 7.2% for FY 2022-23. With respect to the rising repo rate, several banks have already begun rising home loan rates and this trend is expected to continue. Over the last year, the housing sector has seen a recovery in demand across segments, and the higher home loan rates could dent homebuyers’ sentiments, especially in the affordable to mid category. However, we do not see a significant impact on the high-end and luxury segments due to the higher home loan rates”

[Ramesh Nair is the CEO, India and Managing Director, Market Development, Asia of Colliers]

Repo rate hike may impact the cost of capital: Anshuman Magazine

www.newsbarons.comGiven the inflationary pressures present both domestically and globally, the RBI’s decision to increase the repo rate for the third consecutive time by 50 basis points to 5.40 percent came as no surprise. This may impact the cost of capital, however an immediate impact on housing demand is not certain. There has been an increase in appetite for home ownership post the pandemic, and with the upcoming festive season, it might generally withstand the marginal changes in loan rates.

[Anshuman Magazine is the, Chairman & CEO – India, South-East Asia, Middle East & Africa of CBRE]

Home loan rates are now expected to settle around 8% per annum: Amit Goyal

Given the need to tame inflation, the RBI decision to increase the repo rate by 50bps is on expected lines. With this third consecutive hike in the repo rate, we are now back to pre-pandemic levels, highest since August 2019.

Home loan rates are now expected to settle around 8% per annum, which can put a short-term psychological dent on the demand for the mid and affordable housing segment, but we won’t see that continuing for long. We are still in the comfort zone of a single-digit rate. With pent-up demand for housing post-COVID, strong economic growth and a steady job market, we expect the demand momentum to continue in India’s residential housing segment, especially in the top 6 cities, where office leasing and absorption has been strong.

[Amit Goyal is the CEO of India Sotheby’s International Realty]