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RBI's repo rate hike dampens homebuyers' sentiment; realty stocks slide

Real estate companies have month after month posted strong growth in bookings despite rise in repo rates. It will be interesting to see if the latest rate hike will derail that trend.

February 08, 2023 / 01:23 PM IST
 
 
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Interest rate sensitive realty stocks slid further on February 8 after the Reserve Bank of India’s monetary policy committee raised the key policy rate by 25 basis points which will increase the EMI outgo for borrowers.

Though the rate hike was expected, real estate stocks continued to fall. Phoenix Mills was the biggest loser – down nearly 5 percent – followed by Sunteck Realty, Prestige Estates, Brigade Enterprises and Oberoi Realty. The Nifty Realty index fell over a percent.

“Given that interest rates may breach the 9.5 percent mark with today’s hike, we may see some pressure on sales volumes in the affordable and lower mid-range housing segments, which are more cost-conscious,” said Anuj Puri, Chairman – ANAROCK Group, a property consultancy firm. “The affordable segment has already been in the doldrums, and adding further to the cost of acquisition obviously does not help.”

Monetary policy impacts real estate demand in several ways. Since most home loans are now linked to the repo rate, when the central bank raises interest rates, borrowing costs for buying real estate increase, which can reduce demand for housing. Conversely, when interest rates are low, borrowing costs are lower, and demand for real estate may increase.

Also, an expansionary monetary policy, which increases the money supply, can lead to increased consumer spending and borrowing, potentially driving up demand for real estate, and vice versa.

Ramani Sastri - Chairman & MD, Sterling Developers, also agreed that the increase in the repo rate would definitely impact housing affordability.

“The repeated rate hikes may have a short-term impact on overall housing demand and the buyers’ overall acquisition cost would go up. This comes at a time when the real estate sector has shown recovery across important property markets driven primarily by end-users, and this hike may again impact the rate-sensitive sector,” he said.

Real estate companies have month after month posted strong growth in bookings despite rise in repo rates. It will be interesting to see if the latest rate hike will derail that trend.

Some executives believe this may be the end of monetary tightening and a cut down in rates may start from the next calendar year, which will reduce the cost of buying homes.

“We expect the central bank to start easing rates from the next calendar year,” said Cyrus Mody, Managing Partner, Viceroy Properties. “We expect strong demand for quality projects developed by reputed names. The commissioning of transit infra projects will continue to create demand in new micro markets.”

Minimal impact on luxury market

Luxury property market has seen a minimal impact of a 250 basis point hike since last May. This relies on the simple fact that the richie-rich of India will not mind shelling out a little extra to buy the property they fancy.

“The hike will not have a significant impact on luxury housing as the demand of home buyers in this segment is beyond these considerations,” said Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company, which builds luxury themed homes in Goa.

“Luxury real estate has also emerged as a preferred choice for NRIs, HNIs and the uber rich during the past couple of years. As buyers become progressively more discerning in their choices for a signature style of living, they will be more willing than ever before to take the leap and purchase luxurious homes.”

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Shubham Raj
Shubham Raj has five years of experience covering capital markets. He primarily writes on stocks with special focus on PMS-AIF industry, telecom and new-age companies. His last stint was with The Economic Times where he wrote on stock markets and led IPO reportage.
first published: Feb 8, 2023 11:30 am

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