Effect of Hike in RBI Intrest Rates

• The interest rate hike by RBI will force the banks to increase the interest rates on project loans to builders & home loan rates to end customers.

• The immediate effect is home buyer’s hesitancy to buy and many buyers are expected to put off their purchases altogether till home prices come down and rates stabilize directly affecting the builder’s inventory.

• The cascading effect is the builder fraternity already reeling under increased  cost of building materials and lack of quality manpower would slash price to avoid stagnation in selling.

• This hike is however bad news for existing floating rate home loan consumers. Owing to the last 10bps rate hikes by RBI, EMIs for housing loan have risen 25% to Rs 980 per Rs 1 lakh of borrowing, and consequently loan eligibility for home buyers has declined by 20%.

• The situation is not likely to improve in the next few months as economists predict policy rate to be hiked by at least another 50 bps given the inflation and liquidity trends in the macro level.

• With every crisis comes a chance to gain something and the above situation is one such an event that will lead to chain reaction wherein no offer is too low for a builder hoping to reduce inventory.

• This is the best time to bargain buy the best of homes, since it is importance to remember a home buyer gets a loan for 20 years wherein five interest rate cycles will fall within that period. In every cycle the rates are likely to fall down or rise further. But at the end of the period, the gross payable amount will be averaged out for the consumer.