Bhaskar Analysis: The effect of the latest increase in rates is limited at present, but if the rates increase further, the effect on real estate is certain.

The Reserve Bank of India on Wednesday once again increased the repo rate as expected. With this, the lending cost of banks increased by 0.90% in just 34 days. High interest rates have the biggest impact on home loans. However, this increase will not have much impact on home loan demand for the time being, as there has been a slight increase in the income of the people which will act as a cushion, but in the coming time, if the policy rates increase further, the demand will start weakening.

Demand may fall in the real estate sector
Shishir Baijal, Chairman and MD, Knight Frank India, says, “We expect the economy to get back on track in the recent months and the rise in family income will be helpful in dealing with the situation arising out of rising interest rates. If the growth continues, the demand in the real estate sector may drop due to costlier loans amid rising property prices due to higher construction costs.

Anuj Puri, chairman of real estate services company Enrock, believes that the country’s economy is going into the red zone. This means that if the RBI increases the repo rate further, then the economic pace may slow down. The real estate sector will be affected the most. Puri said, “Home loans will be more expensive due to increase in rates. Banks have already started raising interest rates after the sudden repo rate hike in May. This will have an adverse effect on the sale of houses.

Bhaskar Expert – Naveen Kukreja, CEO & Co-Founder, Paisa Bazaar

Those who have already taken home loan, they have three options…

1. Those whose loans are on floating rate linked to external benchmark, their interest will not increase till the reset date of their loan rate change.

2. Those whose loan is on a floating rate, their EMI will increase, but those who have not opted to increase the EMI, their loan tenure will increase.

3. Those who have taken a floating rate loan should pre-pay the loan. Such people can also reduce the loan tenure, so that they can save more on interest.

Rates may increase by 0.25% in August also
There is every possibility that the RBI will again increase the repo rate by 0.25% in its review on August 4. According to Madhavi Arora, Lead Economist, Emkay Global Financial Services, the next two quarters inflation is expected to be above 7%. In such a situation, the repo rate can be increased by 0.75% in the current financial year.