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The Reserve Bank of India’s decision to raise the repo rate by 50 basis points to 5.9 percent, far higher than the pre-pandemic level of 5.40 percent, is likely to restrict the pace of expansion in the residential real estate industry.
The city’s realtors believe the move will have a long-term impact on the sector’s growth and could have been postponed until after the holidays.
The apex bank has raised the policy rate to 5.9 percent with immediate effect, the fourth consecutive hike since May of this year.
After five consecutive hikes in the last five months, the repo rate has risen 190 basis points, and lenders have already raised mortgage rates following the first two hikes in May and June.
How This Repo Rate Rise Impacts The Real Estate Sector?
At one level, it reflects confidence in the economy and the expectation for future growth; at another, it was necessitated by recent global developments such as the Russia-Ukraine conflict, as well as aggressive monetary policies followed by global central banks.
Even though it would have a minor impact on the real estate sector, he wishes the RBI had delayed this rise until after the holiday season.
“While the last repo rate rise was designed at managing inflation, the % boost by 50 BPS has been primarily as a result of, as the RBI governor has stated, the aggressive monetary tightening by the world’s main central banks,” said Nayan Raheja of Raheja Developers.
Even though the quantum is still 5.9 percent, this rate hike will undoubtedly have an impact on the long-term growth of the real estate market because it not only raises it above pre-pandemic levels but also removes the psychological cushion with the possibility of further interest rate increases, Mr. Raheja added.
Signature Global Group Chairman Pradeep Aggarwal stated “The reduction of the repo rate to 50 basis points by the top bank appears to be an accommodating step in light of current global and domestic micro and macroeconomic conditions. Inflation is around 7%, and the government and central bank will take corrective measures to bring it down.”
Why Countries Like US And UK Raises The Interest Rates?
However, he noted that, given the ongoing festive season and strong market sentiments, cheap and mid-segment housing will see a significant boost in demand, and that sales figures will rise by 20 to 30 percent in this quarter and on a year-over-year basis.
“Today’s hike by the RBI was on the expected lines,” said Ankit Kansal, managing director of Axon Developers. Around the world, major economies such as the United States and the United Kingdom are raising interest rates to keep the economy from overheating. However, overall housing demand is strong, and it will be able to withstand any shock from a rate increase.”
“This is the apex bank’s fourth consecutive rate hike in the last five months,” said Saransh Trehan, managing director of Trehan Group. However, despite further rate hikes, demand in the housing market remains strong, and in many places, it is improving.
As a result, we do not expect the RBI decision to have a significant impact on the situation. However, with house rates hovering between 8 and 9 percent, any further tightening will begin to damage the sector and thereby the wider economy.”