RBI rate pause brings cheer to homebuyers, realtors; a hike could have led home loan rates to 10% vicinity 

Any additional policy rate hike could have pushed home loan interest rates even closer to the psychological threshold of 10 percent per annum, creating a substantial impact on buyer sentiments and affordability, experts said.

Hailing the surprise decision by the RBI’s Monetary Policy Committee to keep the repo rate unchanged at 6.5 per cent as ‘bold’ and a ‘welcome step’, real estate experts said the move is expected to provide some respite to affordable and mid-income housing segments and support the current home-buying sentiment.

Though the RBI Governor Shaktikanta Das said the decision to pause was "for this meeting only" and rate would be raised if needed, the move gives relief to homebuyers who feared a rate hike today would have jacked up existing EMIs and new home loan rates.

Any additional policy rate hike could have pushed home loan interest rates even closer to the psychological threshold of 10 percent per annum, creating a substantial impact on buyer sentiments and affordability, experts said.

 Some respite

“RBI has taken a bold step in keeping the repo rate unchanged at 6.5 percent backed by the country’s macroeconomic resilience, robust banking system, and strong financial markets. This is the right step to assess the impact of the previous six consecutive rate hikes working their way through the current inflationary cycle and overall economy,” said chief economist and executive director - research & REIS at JLL India.

Interest rates have been increased by a cumulative 250 basis points in the last 11 months.

This is a welcome move for the real estate industry wherein the RBI has heeded the call from various stakeholders, Das from JLL said, adding India’s residential markets have maintained their trajectory with the first quarter of 2023 registering robust sales growth of 20 percent year on year while also hitting a 15-year high.

Given that the affordability synergy was under challenge with home loan EMIs rising by 15-17 percent from April 2022 and home prices also increasing by 4-12 percent during the same period, the current status quo in the policy rate will provide some respite. This should positively support the current home-buying sentiment, he said.

Developers’ take 

Boman Irani, president elect, CREDAI National, welcomed the RBI’s decision, saying that it would go a long way in sustaining the sales momentum. “This move would provide a further boost for the affordable and mid-income housing segments, in particular. Coupled with the central government also hiking its outlay for the PMAY programme during this year’s Budget, we expect the demand for affordable housing to grow in the upcoming quarters,” he said.

Niranjan Hiranandani, vice chairman, NAREDCO, said the move will help restore homebuyers’ confidence and boost demand. “The industry body now calls for fiscal intervention from the government to cool the inflationary heat caused by persistent geopolitical turbulence caused by the collapse of foreign banks, supply chain challenges, and global financial instability,” he said.

 ‘Give more relief’

Some developers said state governments should consider providing relief to homebuyers by offering stamp duty rebates or registration fee waivers. “Such measures would help mitigate the financial burden on buyers and make homes more affordable for those looking to buy their home," said Pradeep Aggarwal, founder and chairman, Signature Global (India) Ltd.

With this balancing act of RBI, affordability of home ownership is expected to remain intact, said Anurag Mathur, CEO, Savills India, adding that the realty stakeholders will remain watchful of the macroeconomic situation and policy response in the near term.

“This is indeed good for the residential real estate market, which faces a tough road ahead amid massive layoffs by large corporates the world over. India is not decoupled from global economic dynamics and their invariable impact on the housing uptake here. 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,” said Anuj Puri, chairman, ANAROCK Group.

Affordable home sales 

Affordable housing has been under stress since the pandemic. Residential units priced less than Rs 40 lakh saw their share in sales fall between 2019 and 2022 and further in Q1 2023. ANAROCK Research shows that in 2019, out of the total sales of nearly 2,61,400 units across the top 7 cities nearly 38 percent of sales were in the affordable segment.

But in 2022, out of the total 3,64,880 units sold across the top 7 cities altogether, about 26 percent were in the affordable category. There has been a further dip in overall sales share in Q1 2023, as well. Out of the total 1.14 lakh units sold in the top 7 cities in Q1 2023, affordable housing comprised just 20 percent share (approximately 23,110 units sold).

A recent analysis by JLL said while the share of premium apartments priced above Rs 1.5 crore has increased from 18 percent in Q1 of 2022 to 22 percent in Q1 of 2023, the Rs 50-75 lakh category still makes up one-fourth of the quarterly sales. However, the share of affordable apartments priced below Rs 50 lakh in quarterly sales has fallen from 22 percent in Q1 of 2022 to 18 percent in Q1 of 2023.