This may be the end of record low home loan rates in India

Indian real estate's dream run may have hit a speed bump thanks to the Monetary Policy Committee’s decision to hike the repo rate by 40 basis points.

Developers and real estate observers say they have reason to believe the committee’s decision to increase the repo rate to 4.40 percent will effectively end the all-time low home loan interest rates that homebuyers have been enjoying for the last 18 months.

"This hike signals an imminent end to the all-time low-interest regime, which has been one of the major drivers behind home sales across the country since the pandemic began," said Anuj Puri, chairman, Anarock Property Consultants. "Moreover, rising interest rates and inflationary trends in basic raw materials in construction including cement, steel and labour cost will add to the burden of the residential sector, which did significantly well in the previous quarter."

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Indian real estate has been on a revival of sorts in the months following the outbreak of COVID-19, with several prospective buyers advancing plans to turn homeowners.

According to Knight Frank data, the period between July and December 2021 saw 1,33,487 homes sold Pan-India — a 41 percent increase, year-on-year. A total of 2,32,903 residential units were sold through 2021, a year-on-year increase of 51 percent. However, observers say that was on account of low-interest rates.

In fact, a recent Anarock survey held that a product price rise in excess of 10 percent will have a high impact on residential sales, which in turn could affect sales velocity. The study also conceded the hike was not altogether unexpected as 56 percent of just under 2,000 respondents said they expected prices to rise this year.

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"The increase will likely have an impact on the industry as residential demand has been revived in the post-pandemic context and needs to be fostered now,” said Ramani Sastri, chairman and managing director, Sterling Developers.

"It also goes without saying that the real estate industry’s perennial hope is fixed on lower interest rates as it improves affordability and provides the required fuel for the growth of the economy, which includes the real estate sector," Sastri added.

JLL has highlighted the negative impact of the repo rate hike as it projected an imminent hike in home loan interest rates. “From a real estate perspective, this hike in the policy rate is not welcome and will have a negative impact as home loan rates will increase immediately,” said Samantak Das, Chief Economist and Research Head (India), JLL.

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He added: "After a hiatus of five years, we have observed a robust comeback in residential sales and launches in the last couple of quarters due to affordability synergy. However, the repo rate hike coupled with cost-push inflation in construction is likely to slow down the growth trajectory of the residential sector."

However, some others hope that some level of insulation sets in between the repo-rate hike and an actual hike in home loan interest rates. "From a real estate perspective I hope the hike in repo rates will not impact home loan interest rates," said Niranjan Hiranandani, chairman, NAREDCO.

"I hope the regulator will ensure that inflationary pressure on the individual does not get exacerbated by hikes in home loan rates, especially as inflation rates have been beyond the RBI’s upper band of tolerance, which is 6 percent," he added.

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