Monetary Policy Impact: RBI’s pause to support real estate demand - particularly affordable segment

Monetary Policy Impact: RBI’s pause to support real estate demand - particularly affordable segment
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  • A repo rate hike, which was widely expected by the market, could have pushed home loan rates even higher.

  • In the last three quarters, home loan rates have gone up by 40-50% from their historical lows.

  • RBI’s decision particularly gives relief to affordable and mid-segment homebuyers.
The real estate sector has welcomed the Reserve Bank of India’s (RBI’s) decision to keep the key policy rate unchanged on Thursday. The move will also bring cheer to home loan borrowers – both old and new – as home loan rates have been hovering around 9%, following the central bank’s six consecutive rate hikes totaling 250 basis points since May last year.

“The RBI MPC (Monetary Policy Committee) decision to keep a pause on rate hike is positive for the housing market as it reduces the uncertainty and volatility associated with interest rate fluctuations. The home loan interest rates have gone up from 6.5% to around 8.75% with a series of rate hikes in the past and the move to pause will give a temporary reprieve and support the existing growth momentum in the real estate sector,” said Atul Monga, chief executive officer and co-founder, Basic Home Loan.

Another rate hike, which was expected by the market, could have pushed home loan rates into double digit trajectory. Ramani Sastri, chairman and managing director of Sterling Developers, said that another increase in policy rates could have sent interest rates on home loans to an all-time high – impacting buyer sentiments and affordability.

After multiple rate hikes in six months, experts had said that the room to keep home loan EMIs unchanged for existing borrowers by increased tenure had been exhausted – burdening end users.

“The past three quarters have seen a gradual rise in home loan interest rates, causing a significant impact on borrowers as rates have surged to over 9%, marking a 40-50% increase from their historical low,” said Pradeep Aggarwal, founder and chairman, Signature Global (India).


Q1 home sales hold steady amid global turmoil

In spite of the multiple rate hikes, residential home sales continued its winning streak in the first quarter of 2023, after hitting a nine-year high in 2022. As many as 1.13 lakh units sold in Q1 2023 across the top seven cities, says Anarock data — indicating a 14% yearly rise.

However, going ahead, the sector had been worried about the impact of rising property prices due to input costs, and also multiple layoffs across large and small corporates affecting homebuyer sentiment.

"Given the potential adverse impact of a hike in repo rate and its ripple effect on both housing demand and supply, we, at CREDAI, are extremely pleased and welcome the central bank’s decision,” said Boman Irani, president-elect, CREDAI National.

Affordable loans, affordable homes

Even as overall home sales hit new highs, the affordable housing segment never recovered after being hit badly by the pandemic.

“The RBI’s decision to keep the repo rates unchanged comes as a welcome respite to homebuyers. This particularly gives relief to affordable and mid segment homebuyers who feared a possible rate hike today, making property buying via home loans even harder. As is, affordable housing has been under stress since the pandemic,” said Anuj Puri, chairman of Anarock group.

Affordable homes, which are defined as units priced under ₹40 lakh, saw their share in overall sales dip to 26% in 2022, as compared to 38% in 2019. In Q1 of 2023, their share slipped to 20%, says Anarock.

The pause in rate hike, alongwith the government hiking its outlay for the Pradhan Mantri Awas Yojana (PMAY) programme in 2023-24 Budget will bode well for demand in affordable housing, says Irani.

The RBI marginally revised the GDP growth projections for FY24 from 6.4% to 6.5% – this too will bode well for the sector. “We foresee a resilient upward demand trajectory going forward. The momentum in the market is currently driven by the need to upgrade to a better living and the admiration of real estate as a weatherproof asset class, which will continue during the year,” says Nitin Bavisi, chief financial officer, Ajmera Realty and Infra India.

Going ahead, the sector is also seeking more incentives to drive more demand.


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