Residential sales might see a slowdown as RBI hikes repo rate: Experts

Reserve Bank of India’s (RBI) much expected repo rate hike by 50 basis points (bps) for the fourth consecutive time since April 2022  will hamper the housing sector demand. The repo rate stands at 5.90 per cent. Residential sales which doubled almost during the first half of this financial year are expected to slow down following these subsequent hikes as home loan interest rates may go up in the range of 25-30 bps. say industry experts.

The repo rate hike does not augur well for the real estate sector, especially the residential segment as it will result in increased mortgage rates. Since April 2022, RBI increased the repo rate by 140 bps, while home loan rates moved up by an average of 80 bps - more than 50% has been transmitted to date, says Samantak Das, chief economist, and head of research and REIS, India, JLL.  

“Following these hikes, the revised home loan EMIs would increase by an average of 8-9 per cent as compared to 6 months back,” Das said.

The sharp dichotomy between growth - inflation sentiment is getting trickier globally and RBI is challenged to strike an equilibrium between spurring progressive GDP growth and docile inflation pressure out of tolerance limit, said Niranjan Hiranandani - Vice Chairman - Naredco and  MD- Hiranandani Group

“The markets are now succumbing to the rising interest rate curve with the undesired ramifications on the currency trade, consumer spending, and investment cycle, any further repo rate hike will lead to an enhanced inflationary situation with a counter -impact on the growth rate as well as consumption sentiment,” he said.

He said that any further hike in interest rate compounded with commodity inflation will act as a market dampener. The postponed consumption will hurt the housing market which is currently on the upward growth curve.

The measures by the RBI towards increasing Repo rate by cumulative 190 bps and surplus liquidity withdrawal has started to show on consumer loans.

Vivek Rathi - Director Research, Knight frank India said, “We  expect transmission of more than half of the policy rate or around 100 bps increase in home loan interest rates in this rate cycle.”

The developers are expected to support consumers to cushion the impact of increased home loan interest rates by offers like limited period interest rate capping or some other direct measures during this festive season, Rathi said.

The survey by ANAROCK, a property consultant said that 61 per cent of the respondents 

 saw high inflation as a major concern for them as it severely impacted their disposable incomes.

“ Home loans will get dearer soon, the hike in home loan rates will be in addition to the other increasing costs such as inflationary trends of construction input costs,” said Anuj Puri, Chairman - ANAROCK Group.

He also said that with the overall acquisition cost increasing further, developers will have to seriously consider doling out targeted offers and discounts to boost sales during the critical festive quarter.

The continuous rise in home loan EMI is expected to emerge as a sentiment disruptor during this festival season particularly in the affordable and mid-range housing segments.  

“The silver lining is that only when the home loan interest rates breach the 9.5 per cent mark will housing sales see a ‘High Impact’ and if rates remain between 8.5-9 per cent, the impact is expected to be moderate,” Puri said.

In the last couple of years the cost of construction materials like steel, cement, tiles and others has increased between 50 per cent to 100 per cent. Most developers are working on very thin margins and there is no elbow room for a price cut. However, considering the festive season we are offering gifts to homebuyers, said Saransh Trehan, managing director, Trehan Group.

He said that  input costs are already on the higher side, with the latest increase in the repo rate, it will further go up and another issue for developers is for supply constraints and the government should look at addressing supply bottlenecks.


While banks will eventually be forced to pass on this increased cost to borrowers, the possibility of this happening during the ongoing festive season is low, said  Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com.

Considering that a large number of home buyers in India make their purchase decision during this time of the year, financial institutions would not like to dampen the festive spirit by effectuating a rate hike immediately, he said.

As the festive season has already begun, we can expect offers, discounts and benefits offered by developers to counter any home loan rate hike impact on sales, said Shiwang Suraj, Founder & Director, Inframantra.

The hike might impact consumption sentiments negatively ahead of the festive season. However, from a home buyers’ perspective, home loan rates will still remain below 9 per cent per annum and the developers should come up with offers and festive discounts in the market, said  Amit Goyal, CEO, India Sotheby’s International Realty.