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Rising repo rates may result in deferred home buying plans

By Rishabh Chamoli | 2022-10-05

Rising repo rates may result in deferred home buying plans

The Reserve Bank of India (RBI) recently announced its fourth successive hike of the repo rate by 50 basis points (bps). Experts believe that this will likely lead to prospective homebuyers deferring their immediate plans to buy a property and opting for rental accommodations instead for some quarters.

The Reserve Bank of India (RBI) announced fourth successive hike in the repo rate by 50 basis points (bps) in September 2022, taking the cumulative increase to 190 bps in the year 2022. Two major mortgage lenders, LIC Housing Finance and Housing Development Finance Corporation, have already announced upward revisions in lending rates. Others are expected to follow suit. Industry experts believe that this move will push a section of prospective homebuyers to defer immediate plans to purchase property and opt for rental accommodation over the next few quarters.

While the increase in interest rates had not greatly impacted the housing sales so far, the impact might start getting visible now. Higher home loan interest rates will to push up the equated monthly installments (EMIs) for homebuyers, thus slowing the pace of growth in residential real estate.

What do industry insiders say?
Amarendra Sahu, Founder and CEO, NestAway Technologies, shared, The home mortgage rates are now back to pre COVID levels or even higher. This is likely to increase traction in the rental segment. A higher home acquisition cost and interest rates will make renting far more affordable. Also, homebuyers will likely wait for the current cycle to get over.

Housing loan rates, Current status
Four rounds of increases in policy rates have taken housing loan rates to 8.4 percent from the decadal low of 6.6 percent just five months ago. Experts believe that by March 2023, two more hikes will be announced, thus taking the interest rates above nine percent and negatively impacting the home ownership appetite and eventually housing demand in the process.