Home loans are set to get costlier with the Reserve Bank of India’s monetary policy committee (MPC) raising the repo rate for the fourth time in a row by 50 basis points to 5.9%.

“With this repo rate hike, home loans will get dearer soon. This could impact residential sales to some extent during the upcoming festive quarter, particularly in the affordable and mid-range housing segments,” says Anuj Puri, chairman of ANAROCK Group.

The hike in home loan rates will be in addition to the other increasing costs such as inflationary trends of construction input costs, Puri says.

“The silver lining is that only when the home loan interest rates breach the 9.5% mark will housing sales see a ‘High Impact’. If rates remain between 8.5-9%, the impact is expected to be moderate,” he says, adding that with the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter.

This comes at a time when the real estate sector had started seeing gradual recovery across key property markets, driven primarily by end-users.

This decision will have adverse impact for the interest rate-sensitive sector, says Ramani Sastri, chairman and MD, Sterling Developers. “The rate hike may impact the real estate sentiment when buyers are likely to invest in their dream homes during the ongoing festive season. Home loan interest rates may increase now, leading to short-term turbulence on overall housing demand,” Sastri says.

The recent consecutive repo rate hikes had already added to buyers’ overall acquisition cost, he says, adding that with gradually increasing loan rates, homebuyers’ apprehension could set in quickly and they might adopt the wait-and-watch sentiment.

“Subsequent rate hikes will also mean a deterioration of affordability as low interest rates have been the biggest factor in the resurgence for real estate demand in the last few years. However, we 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 a few years ago. Despite the odds, we’re still hopeful as there is significant pent-up demand from a very large population base and first-time home buyers. Real estate is definitely an asset class that one must remain invested in today and in the long term and looking ahead, we do believe that markets will see sustained growth over the next few years,” says Sastri.

This move might impact the home loan category, which may influence the buying sentiments of affordable to mid-segment home buyers, says Venkatesh Gopalkrishnan, CEO, Shapoorji Pallonji Real Estate. "While we may not witness a great upward trend given the current scenario, we have seen good business in recent times, which is likely to continue," he adds.

"Overall, in comparison to the global trend of inflation, the real estate sector is hopeful that this rate hike will not completely dampen the buying sentiment. Additionally, the ongoing festive season is likely to bring in some positive movement as homeownership remains important for home buyers and will eventually result in sales, especially in the luxury and premium categories," Gopalkrishnan says.

Agrees, Goa-based realtor Lincoln Bennet Rodrigues. “We don’t see a significant impact on the luxury housing segments due to the current increase in repo rate hikes as the demand of home buyers in this segment is beyond these considerations. The impact of rate hike will be predominantly on the affordable housing side, which is primarily driven by sentiments and especially first-time home buyers who are heavily reliant on home loans. We believe the positive sentiment will continue in the luxury segment driven by changes in buying patterns post the pandemic,” says Rodrigues.

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