Will The Repo Rate Hike Impact Housing Demand and Indian Real Estate Market Adversely?

February 2023: The Reserve Bank of India increases repo rate by 25 basis points to 6.5%

Since the end of 2021, the real estate market and demand for houses in India have been on the rise throughout the whole of 2022 and into the beginning of 2023.

Will the Reserve Bank of India's (RBI) decision to hike the repo rate have a negative impact on the housing market in India, resulting in higher mortgage rates and lower affordability?

This is a question that almost everyone connected to the Indian real estate industry including property brokers, homebuyers, real estate investors, property developers, home loan agents, etc. have on their minds currently.

Impact on Affordable Housing

Numerous real estate experts expect that the affordable housing market will be severely affected, although the middle-income and luxury property markets will remain cautious and see a protracted sales cycle.

6th Hike

The RBI lifted the repo rate by 25 basis points in the middle of the first week of February 2023. This is the sixth straight hike in policy rates since May of 2023, increasing them to 6.5% instantly and making loans more expensive.

Demand Economics

Top real estate specialists predict that the affordable housing price index would have a spiraling impact due to the predicted pattern of prolonged core inflation. In spite of the fact that surplus liquidity will drive loan development in the real estate sector, demand economics may be challenged in this vast section of the consumption pyramid.

Since May 2021, an unreasonable rise of 250 basis points must be substantiated before it becomes disruptive to India's accelerating economic growth curve.

Many in the Indian real estate industry feel that a rise in house loan interest rates would be bad in the affordable housing segment, as it would have a detrimental impact on price-sensitive customers and deplete the supply of developers.

Conclusion

In spite of the fact that inflation has increased in these unique conditions and the Reserve Bank of India has maintained its monetary policy stance, an increase in the repo rate would not assist homeowners. Since 2022, the current verdict reflects a significant gain of 250 points. According to real estate experts in India, global economies have maintained a similar position, and the continued increase in interest rates would diminish the desire of individuals and businesses to borrow.