RBI Set To Declare Monetary Policy, Another Rate Hike Expected: Real Estate Sectoral View

The RBI is going to announce its upcoming monetary policy this week, analysts are expecting another 50 bps rate hike from the central bank. As the inflationary pressure increases, major countries like the US, and England are raising their interest rates, and India is also following the same path.

The housing sector, which was struggling majorly during the pandemic, has started to revive fast. However, the recent rate hikes by the RBI have pushed the banks to increase their interest rates on home loans, car loans, etc. This is eventually impacting the real estate sector. With higher interest rates on home loans, housing is becoming more expensive now.

However, commenting on the matter, Anuj Puri, Chairman, ANAROCK Group stated, "Will another rate hike impact housing demand? This is less than likely. To begin with, it had always been clear that the low-interest rate regime was a short, sweet, and ultimately unsustainable interlude. It was required during and immediately after the worst Covid-19 waves, which had seriously intimidated Indian consumers at all levels. Thankfully, their departure is gradual, leaving space for a softer landing to a consumer base that is historically accustomed to high-interest rates.

"A degree of discomfort notwithstanding, a 50-bps hike should not seriously hamper homebuyers' sentiments. Moreover, the festive season is around the corner. This is a period when developers usually roll out various freebies and offers, and we may even see fixed interest rate guarantee plans announced this year. While considering the festive offers, homebuyers will zero in on those which directly help contain their overall transaction costs, Puri added later.

In the wake of a surge in crude oil prices and geopolitical tensions, inflation has reared its ugly head in India. The Reserve Bank of India (RBI) was prevailed upon to announce a series of rate hikes to counter it, and the process is far from over. The repo rate stands at 5.4% as of now and the RBI may hike rates by 50 bps in the upcoming policy meet.

"Declining interest rates were a key reason for the massive housing demand surge in the past two years. Also, the pandemic reinstated the importance of owning physical assets like real estate. This time around, the demand revival even included the previously rent-favoring millennials - who continue to be on the market for homes," Puri considers.