Mumbai, May 4 (Agency) The Reserve Bank of India’s sudden move to increase the repo rates by 40 basis points to 4.40 per cent for taming inflation, will lead to a rise in property prices as the cost of borrowing will go up amid rising commodity prices, experts say. At the same time, home buyer sentiment is also likely to get impacted as the hike in repo rate will lead to an increase in home loan interest rates. “The real estate sector has seen an uptick and is on track to full recovery post the pandemic. The increase by 40 bps to 4.40 pc witnessed in the repo rate will lead to a hike in home loan interest rates,” Sandeep Runwal, Managing Director, Runwal Group and President, NAREDCO, Maharashtra said.
He further said that since at the macro level the borrowing costs for corporates and individuals is expected to increase, developers will have to pass on the price rise to the potential buyers. Explaining the rationale for this sudden increase in repo rates before the scheduled bi-monthly meeting of the Monetary Policy Committee, RBI Governor Shaktikanta Das said, “The MPC judged that the inflation outlook warrants an appropriate and timely response through resolute and calibrated steps to ensure that the second-round effects of supply side shocks on the economy are contained and long-term inflation expectations are kept firmly anchored. In the MPC’s view, monetary policy response at this juncture would help to preserve macro-financial stability amidst increasing volatility in financial markets.” Sharing his views, Ashish Narain Agarwal, Founder and CEO, PropertyPistol.com opined that this hike could lead to a rise in home loan rates and EMI’s further leading to a dampened sentiment. “With construction commodities like cement, steel, and labour being expensive, the sector will face a setback that was going strong so far. However, we can expect that as soon as the geo-political scenario stabilizes, the MPC may soon roll back to a consolidated and encouraging repo rate for the sector,” he added.
Ashish Bhutani, Chief Executive Officer, Bhutani Group opined that at the current situation when real estate sector is facing double whammy of high construction cost and rising land price, such a sudden steep hike of 40 bps in repo rate should be taken as a signal that prices across all segments of real estate will go up. Echoing similar views, Anurag Mathur, CEO, Savills India said, “The impact of the off-cycle decision on all housing segments especially affordable housing demand needs to be closely monitored in upcoming quarters. On the supply side, steady rise in construction costs and the impact on financial stability of developers, unable to pass through the increase, could create a pressure on pricing.” Niranjan Hiranandani, Vice-chairman, NAREDCO, however hoped that the hike in repo rates will not impact home loan interest rates; and that the regulator will ensure that inflationary pressure on the individual does not get exacerbated by hiked rates of home loans. “Inflation rates in India have been beyond the RBI’s upper band of tolerance, which is 6 per cent, and the rationale of the move makes sense – the hope being that home loans would not get impacted,” he added.