Rate hikes doing realty market no good
To hit buyers and Investors harder
For the thirteenth time in 18 months, the Reserve Bank of India has raised repo and reverse repo rates by 25 bps to 8.5% to arrest inflation, negatively impacting buyer sentiment and curbing investor activity in the residential real estate market.
The series of spikes in home loan interest rates will dampen sales. Buyer sentiments on the residential market will remain somber for now, and the absorption rate will remain low. This is undoubtedly a buyer's market now, and investor activity will be curtailed, says Anuj Puri, chairman and country head, Jones Lang LaSalle India.
New launches will decline, as will growth in capital values. In the normal scheme of things, the current scenario will hasten a correction in metropolitan cities where residential markets have slowed due to overly high product costs. However, developers are facing a considerable liquidity crunch due to high cost of borrowing compounded by slow sales.
“The RBI may want to rethink its seemingly one-dimensional strategy to combat inflation. The high costs of construction that are resulting from it are not helping anyone, because developers have little option but to pass on the bulk of the additional burden to buyers,” he adds.
So, what should new and existing home loan seekers do in such as scenario? According to Harsh Roongta, CEO, apnapaisa.com, “the interest rate peak cannot be far away and hence locking into a fixed high interest rates for a duration of 24-60 months just does not make sense. If at all you seek safety, it is advisable to go in for a dual rate loan (which charges no premium over its current floating rate).”