Rising rates to impact post-pandemic recovery in real estate sector

The real estate sector, which is highly dependent on bank financing for both builders and customers, is worried that rising rates will impact post-pandemic recovery and slow down sales.

Anuj Puri, chairman of real estate advisory firm Anarock, said the hike was anticipated with inflation edging higher in the aftermath of the Russia-Ukraine war and surging oil prices. "A hike was inevitable, but we are now entering the red zone. Any future hikes will reflect markedly on housing sales," he warned.

The increasing rates will depress demand from consumers. "The RBI is tasked with controlling the spiralling inflation in the country, but must simultaneously be careful not to hurt demand recovery. This is a tightrope walk under the best of circumstances. Overall, high inflation with low GDP can be cause for worry, but as of now the Indian economy remains robust. The rate hike will push up home loan interest rates, which had already begun creeping upward after the surprise monetary policy announcement last month. Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12% and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments," he said.

Another real estate developer said any increase in the interest rate will further impact the cost of doing business and hence the move will hurt business sentiment too, as the economy is still recovering from the Coronavirus (Covid-19) pandemic. "However there has been a fundamental change in buyers' expectations and attitude towards homeownership and this will largely withstand marginal fluctuations in lending rates," said Ramani Sastri, chairman & MD, Sterling Developers.