Two rounds of increases in policy rates in a month have raised EMIs by up to ₹12,000 for those with loans of ₹1 crore and above.
For instance, assuming complete transmission of a repo rate increase, for a home buyer in Mumbai with a home loan of ₹2 crore, the EMI has increased from ₹159,898 per month before the rate hike to ₹164,807 in May and now ₹171,041 in June.
“The bank that I availed a loan from has recently informed me that the EMI will keep moving upward depending on government rates. It will put further pressure on the monthly budget for us,” said Ravi Krishnan, who took a loan of ₹1.5 crore last year.
Home loan rates are still approximately 150 bps below those prevailing in 2019, and a reversion to those levels will result in an 11.73% increase in the EMI load for the homebuyer and an effective 3.38% decrease in affordability, Knight Frank said in its latest affordability index publication.
India’s central bank raised the repo, or the rate at which it lends funds short term to commercial lenders, by 90 basis points in two tranches.
One basis point is 0.01%.
The central bank will likely continue increasing the policy rate to narrow the gap with consumer inflation index and reduce the extent of the negative real interest rate in the economy, which still stands at -1.8%, said industry experts.
“While it is a critical tool in the fight against burgeoning inflation, this turn in the interest rate cycle could be a significant headwind to real estate demand,” said Shishir Baijal, chairman, Knight Frank. “The performance of the broader economy will have a greater bearing on market momentum for the remainder of the year as it dictates homebuyer income levels and demand much more directly.”
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