RBI Rate Pause: Housing Sector Celebrates

Much against general expectations, the RBI decided to keep the repo rates unchanged at 6.5 percent on 6 April.  Experts said this will indeed be good for the residential real estate market, which faces a tough road ahead amid massive layoffs by large corporates the world over. 

Boman Irani, President-Elect, CREDAI National said: "We laud the RBI for maintaining the repo rate, in a move that is bound to go a long way in sustaining the sales momentum that we’ve witnessed in the residential segment.” 

“The RBI’s decision to keep the repo rates unchanged comes as a welcome respite to homebuyers,” said Anuj Puri, Chairman – ANAROCK Group. He added: "This particularly gives relief to affordable and mid segment homebuyers who feared a possible rate hike today, making property buying via home loans even harder. As is, affordable housing has been under stress since the pandemic. This segment (units priced <INR 40 lakh) saw its overall sales share dip between 2019 and 2022 and further in Q1 2023. ANAROCK Research indicates that back in 2019, out of the total sales of nearly 2,61,400 units across the top 7 cities nearly 38% sales were in the affordable segment. But in 2022, out of the total 3,64,880 units sold across the top 7 cities altogether, about 26 per cent were in the affordable category. There has been a further dip in overall sales share in Q1 2023, as well." 

Niranjan Hiranandani, Vice Chairman NAREDCO elatedly expressed that "In contrast to the World Bank, India Inc. applauds the RBI's decision to pause the rate hike cycle. This act of relief will restore confidence in homebuyers’ sentiment and boost demand rally in real estate. The industry body now calls for fiscal intervention from the Government of India to cool the inflationary heat caused by persistent geopolitical turbulence caused by the collapse of foreign banks, supply chain challenges, and global financial instability. Additionally, devising innovative flexi or step-up EMI schemes by the banks and FIIS will be conducive for the market players to onboard new home buyers in the high-interest rate regime." 

Experts Give Thumbs Up

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE said: "RBI’s decision to keep the repo rate stable was a surprise move but has been done with the view of the withdrawal of accommodation while keeping a close eye on inflation. The move is highly encouraging for the infrastructure, housing, and other real estate segments, as this decision, for now, allays fears of a further increase in financial burden on developers and borrowers."

Shishir Baijal, Chairman & Managing Director, Knight Frank India termed the 'pause in repo rate hike' as a "big cheer for the real estate sector". "Any further hike in the repo rate and lending rates along with sustained inflation could potentially reduce the spending capacity of the consumers which in turn can dampen India’s economic growth. Therefore, the RBI’s decision to pause its rate hike cycle is supportive of economic growth," said Baijal. 

Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com echoed the sentiments. Agarwala said: "If the RBI had gone for another rate hike, lending rates would have reached a record high level that may have impacted the positive buyer sentiment the housing sector has witnessed in the past one year. By hitting a pause button in a surprise move, the banking regulator has signalled it is willing to support growth even as it tackles concerns over inflation." 

Amar Ambani, Head of Institutional Equities at YES Securities, said the move from RBI "positively surprised the markets". He said: "With India’s real rates projected to remain positive around 130bps for FY24 and emerging global concerns about financial stability, we reckon that RBI will likely sit tight on the policy rates for quite some time." Ambani termed RBI as being "over-optimistic on growth given that consensus projections call for 6 percent GDP growth for FY24."

"On the interest rate trajectory, we now clearly see 6.5 percent as the terminal repo rate and effectively now rule out any rate hikes during this year, notwithstanding the rhetoric from RBI regarding the possibility of further policy action," said Ambani.  

Nilesh Shah, MD, Kotak Mahindra AMC gave a cricketing analogy to explain the move by the RBI. He said: "The RBI’s pause is like Sachin stroke on a tricky pitch but with eyes set in and having the luxury of hitting the ball where ever he wanted. The RBI had the option of a rate hike or a pause. The pause was not entirely unexpected." The RBI will watch developments and data before taking the next call. The market expects the RBI to fetch maximum run and win the match on inflation and growth, no matter which Direction they hit the ball, said Shah.  

Ritika Chhabra- Quant Macro Strategist – Prabhudas Lilladher PMS said: “The decision to keep the repo rate unchanged at 6.5 percent is a pleasant surprise as we were expecting a 25bps hike. With a decrease in inflation projection for FY24 from 5.3 percent earlier to 5.2 per cent, the real rate now stands at 130bps, thus allowing RBI to not go for another rate hike.”

Ram Raheja, Managing Director at S Raheja Realty called it a "welcome move from the RBI". " The realty sector was hoping for a pause as the cost of construction has been consistent. The consumer sentiment within the residential real estate segment will witness a further uptick," Raheja added.  

Nitin Bavisi, CFO at Ajmera Realty & Infra India said the real estate will rejoice in the move the most. "The central bank has already hiked the rates 6 consecutive times since May 2022, cumulatively 250 bps. There were concerns that the move was affecting the recovery and growth of the economy," Bavisi said.  

Amit Goyal, CEO, India Sotheby's International Realty also welcomed the move from RBI. Goyal said while the luxury and high-end segments have not been significantly impacted yet, further increases could have affected the overall industry. "We remain optimistic that inflation will come under control and there will be no further increase in policy rates," Goyal added.  

Terming the RBI's move to pause the repo rate a "significant step", Pradeep Aggarwal, Founder & Chairman, Signature Global (India) pointed out that the past three quarters saw a gradual rise in home loan interest rates, causing a significant impact on borrowers as rates have surged to over 9 percent, marking a 40-50 percent increase from their historical low. " 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 sentiments and affordability," Aggarwal added.  

Avneesh Sood, Director, Eros Group said the RBI's decision to maintain the policy rate unchanged shows that it wants to maintain a vigilant stance in the near future. "Calibrated steps undertaken by RBI will help the growth and consumption at the critical juncture of global headwinds and slackening demand trajectory," said Saket Dalmia, President, PHD Chamber of Commerce and Industry. 

Ashish Sinha

BW Reporters Ashish Sinha is an experienced business journalist who has covered FMCG, auto, infrastructure, tourism, telecom among several other beats. Ashish has keen interest in the regulatory scenario impacting different sectors. He writes on aviation, railways, post and telegraph, infrastructure, defence, media & entertainment, among a wide variety of other subjects.