It’s time to shift to fixed home loan rates, say experts after third rate hike in 4 months

• India’s central bank has increased the key repo rate to 5.4%, which will make EMIs for home and other loans more expensive.
• This is the third such hike carried out by India’s central bank in the last four months.
• The industry also seemed to be bumped with the timing of this increase as home sales in India had just recovered from Covid blues.

Home loan EMIs are all set to rise once again as the Reserve Bank of India (RBI) increased the key repo rate to 5.4% to tame the inflation rate in the country. The RBI governor Shaktikanta Das announced this increase of 50 basis points (bps) on Friday morning.

The rate hike will eat into household budgets as home loans, car loans get costlier.

This is the third such hike carried out by India’s central bank in the last four months and it will increase the borrowing costs for both corporates as well as individuals.

“A 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,” Anuj Puri, the chairperson of property consultancy firm Anarock group, said.

Kalpesh Dave, head of corporate planning and Strategy at Star HFL, advised the existing borrowers to engage with lenders to see if they can maintain their EMIs through increase in balance tenor for floating rate loans.

Consumers can also think of switching to fixed rate loans after a careful cost-benefit analysis, he suggested.

End of low interest rate regime

Puri noted that the announcement marks the end of the all-time best low interest rate regime, which drove housing sales across the country since the pandemic. The interest rates — along with swollen primary raw materials costs of cement, steel, labour — will increase the property rates.

Real estate company CREDAI’s president Harsh Vardhan Patodia noted that these factors would immediately impact home buying, though only for a short-term. The impact may last till the festive season of Diwali as well, multiple experts have pointed out.

However, Raman Sastri, the chairperson and MD of Sterling Developers, emphasized that there is still hope from pent up demand from a very large population and first-time home buyers

The timing couldn’t have been worse

The Indian real estate market is also unhappy about the timing of this rate hike, as the housing sales were just beginning to show signs of recovery. The sale of residential property in the first half of 2022 was the highest in over a decade. According to data shared by Anarock Research, roughly 1.85 lakh units were sold across top seven cities between January to June 2021.

“The inflationary pressures and the resultant change in RBI’s earlier dovish policy stance couldn’t have come at a more inopportune time for the sector. However, we believe that the long-term prospects look healthy given that macro-economic dynamics will moderate to a more favourable one as growth remains intact and global headwinds ease up,” Dr Samantak Das, chief economist and head of research at Real Estate Intelligence Service (REIS) India, said.

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