By Animesh Deb
New Delhi (India) July 31 (ANI): The Reserve Bank of India’s upcoming monetary policy committee announcement and guidance is expected to be a decisive event for the interest rate-sensitive Indian real estate sector.
The next monetary policy committee (MPC) meeting is scheduled for August 3-5. In line with the global trend of monetary policy tightening to cool off inflation, the RBI has so far hiked the key interest rates by 90 basis points to 4.90 per cent.
It is very much likely that the Indian central bank will further hike interest rates to bring back inflation to the mandated 2-6 per cent range from the current 7 per cent.
“If another repo rate hike takes place, home loan interest rates will enter the red zone, and we can expect at least short-term repercussions on overall housing demand. Inflation is now one of the significant risks in real estate, and increased input costs have already compelled many developers to hike property prices in the first half of 2022,” said Anuj Puri, Chairman of real estate consultant ANAROCK Group.
The RBI’s two consecutive repo rate hikes in the recent past, meant to tackle inflation, have added to buyers’ overall acquisition cost and together these factors can dent demand over the short-term, Puri said.
“Developers have had no recourse but to increase property prices, as input costs have been growing constantly. Repo rate hikes are a major concern as the real estate sector treads cautiously in the current uncertain times,” Puri said adding there was an 8 per cent quarterly decline in new housing launches across the top 7 Indian cities during April-June.
In response to the two consecutive rate hikes by RBI, several banks have already begun passing on the rise in the form of higher lending rates.
“At a time when the housing market has seen a revival in demand, higher home loans could dent consumer sentiment, thereby impacting demand, especially in the affordable to the mid category in the coming quarter,” said Ramesh Nair, CEO, India & MD, Market Development, Asia at global real estate advisory firm Colliers.
However, Nair doesn’t see a significant impact on the high-end and luxury housing segments due to the current increase in home loan rates.
On price hikes by developers in the near term, the industry has seen moderate price hikes by developers led by inflationary pressures and higher cost of construction.
“The price hikes were across major markets and in projects by Grade A developers who have a good brand name and proven record of execution. However, it is important to note that there is some softening of construction costs owing to the government’s efforts to rationalize duties and taxes on input materials,” Nair added.
The silver lining, however, in the Indian real estate sector is the revival in office, residential and industrial segments.
V Swaminathan, Executive Chairman, Andromeda loans and Apnapaisa.com said: “In all likelihood, the RBI may once again decide to raise the repo rates to combat the inflationary growth, which is outside the RBI’s comfort zone. If it happens, experts believe that the real estate sector may enter the red zone, which could be marked by a rapid fall in housing sales.”
Buyer apprehension could set in quickly and the consumers might adopt the wait-and-watch sentiment, Swaminathan said.
“With gradually increasing loan rates, homebuyers’ attitudes could shift and we may once again start seeing a good number of unsold housing units in all major cities. But experts believe that there may be a silver lining, as affordability and the disposable incomes of new-age homebuyers are much better than what it was, say 10 years ago,” Swaminathan added. He explained that it could be due to the increased job and wage growth in most other sectors in the country.
“The current US dollar appreciation, coupled with the rising inflation has already driven up the price of construction raw materials such as steel, cement, and bricks.” The developers are already incurring these cost pressures and they will be forced to pass it on to the homebuyers.
In deviation from others, Rajan Bandelkar, President of the National Real Estate Development Council believes that the rate hike should be looked at from a larger perspective as the extent of price rise passed on to consumers has been lower as compared to the increase in the input costs. (ANI)