Why RBI’s rate hike pause is good news for budget homebuyers

What this means for budget homebuyers

RBI keeping the rates unchanged brought much-needed respite for the real estate sector but was also a surprise as most had anticipated a 25-basis-point hike. This may quell anxiety among borrowers and encourage prospective homebuyers to finalise decisions that may have been put on hold.

“Any additional policy rate hike could push home loan interest rates even closer to the psychological threshold of 10% per annum, creating a substantial impact on buyer sentiment and affordability, particularly in the budget housing segment,” said Pradeep Aggarwal, founder and chairman, Signature Global (India) Ltd.

The rate-hike pause gives more relief to buyers of budget homes, who are struggling with the rise in property prices and surging home loan rates. “This decision will provide stability in the home loan category and keep the EMIs unchanged. It will maintain the buying sentiment in the real estate sector and may lead to an upsurge in the mid-segment housing category,” said Venkatesh Gopalakrishnan, CEO, Shapoorji Pallonji Real Estate.

The impact on budget housing so far

Housing units priced below ₹40 lakh saw their share of overall sales dip between 2019 and 2022, and in the January-March quarter of 2023. In 2019, of the total sales of nearly 2,61,400 units across the top seven cities, nearly 38% were in the affordable segment as per Anarock Property Consultants. But in 2022, of the total 3,64,880 units sold, about only 26% were in the affordable category. In the March quarter this year, of the total 1.14 lakh units sold in the top seven cities, affordable housing comprised just 20% (around 23,110 units sold).

The rebound in real estate after the pandemic caused developers to focus more on luxury projects, leaving affordable homebuyers with fewer options. They also bore the brunt of higher prices and more expensive loans.

Anuj Puri, chairman, Anarock, says this is good for the residential market, which faces a tough road ahead amid massive layoffs by large corporates and rising property prices. “India is not decoupled from global economic dynamics and their invariable impact on the housing uptake here. This particularly gives relief to affordable and mid-segment homebuyers who feared a possible rate hike,” Puri said.

Is this the end of rate hikes?

Not quite. Real estate analysts and developers are seeing the unchanged rate as temporary relief and not the end of the interest rate hike cycle as RBI governor Shaktikanta Das has said the pause does not mean a pivot.

As of now, the pause in repo rate hikes is likely to support the momentum of the real estate sector in the coming months. “With this balancing act by the RBI, affordability of homes is expected to remain intact. However, real estate stakeholders will remain watchful of the macro-economic situation and policy response in the near term,” said Anurag Mathur, CEO, Savills India, a property advisory.