Sluggish Residential Realty Market May Slump Further If RBI Hikes Rates, Say Experts

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    The Indian realty market may be heading for some rough times again. The Reserve Bank of India (RBI) is widely expected to raise the repo rate and that is going to badly hit the real estate market, especially the residential segment.

    The RBI is expected to raise the repo rate, the rate at which the central bank lends to commercial banks, by 25 basis points to 6.75 per cent. Several financial experts, including Ramesh Nair, CEO and country head at real estate services firm JLL India fear that a rate hike would “definitely have a negative impact” on the housing market outlook, as told to CNBC.

    The past few years have not been very kind to the Indian real estate market. The slump was worsened by the loss of trust among the homebuyers as more and more developers failed to deliver the houses on time. After RERA, buyers have just started to again show some interest in the real estate market.

    However, if the bank does increase the REPO rate as expected, and that too, just before the start of the festive season, the buyers will think again as the affordability of the projects might decrease. It may be recalled how a combination of high interest rates between 2012 and 2016, as well as significant increases in property prices in major cities, made housing less affordable for buyers.

    No wonder, rate hikes would most likely dampen the sentiments among the potential buyers in the residential property sector as the average home-buyer could feel the pinch from higher interest rates.

    Shishir Baijal, chairman and managing director of Knight Frank India, explained how such a hike will badly hit mid-to-lower tier housing market since their home purchases are mostly financed through bank loans. He also further pointed out to CNBC that in recent months, lower-priced residential properties showed a greater demand than luxury or premium housing. But such an upsurge would be affected if the rate increases.

    The hike in the rate is not only going to hit buyers alone, but will eventually hit the capital-starved developers as well.

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