Realty costs to rise, hit sector hard

NEW DELHI: The RBI’s decision to increase its policy (repo) rate will lead to rise in home loan rates. Home loan rates of the existing borrowers, whose rates are linked with repo rate, will automatically increase by 0.40 percentage points, which will increase their EMIs by around 3.25% if they want to keep their repayment tenure unchanged.

According to HDFC Bank, the increase in cash reserve ratio (CRR) is expected to withdraw liquidity of Rs 87,000 crore from the money market. While an increase of 50bps in the home loan rate to 7% will raise EMI on a 20-year loan by 4%, 100bps rise to 7.5% will increase EMI by 8%.

That means, EMI on a home loan of Rs 1 crore will increase by Rs 2,973 to Rs 77,530 if the rate increases to 7% and by Rs 6,002 to Rs 80,559 if rate rises to 7.5%. The rise in the interest rate will also lead to a rise in the prices of real estate as construction financing will become costly.

Therefore, on the whole, the move will affect the sector badly. “This rise in interest rates will ultimately impact overall acquisition cost for homebuyers — and may dampen residential sales,’’ says Anuj Puri, chairman, Anarock Group.