Since Reserve Bank of India (RBI) has cumulatively raised the repo rate by more than 250 basis points (bps) since May 2022 to 6.5 at present. RBI have not increased in Repo rate in last monetary policy in the month of April 2023. Increase in Repo rate in turn increase the ROI of your exiting home loan as home loan interest rate are not fixed but on floating basis.
In order to pass the burden of inflated ROI lenders changed the tenures of home loans which cause no inconvenience to customers. Any customers can increase their EMI or tenure at no additional cost. Around 85 % of home loan portfolio of Lenders remain in comfortable level and rest 15 % of customers lenders can ask to revise the EMI.
Is revised EMI being very High?
Since Home loan Average tenure is around 12–15-year, impact of revised EMI is not very high. Most of the customer who opted for revised Emi noticed that their EMI have increased less that Rs500. Banks/ NBFC’s do not see any stress in exiting home loan repayment. Even for fresh Application growth are in line with projected figure. The Increase in ROI have impacted only high value tickets not major retail portfolio.
Housing Demand in FY24
The impact of interest rate hikes by RBI on housing demand will marginally effect if we keep in mind the economy growth in FY24. Out Indian economy will grow more than 6.4 % in coming 10 years. Whenever any economy growth is steady and healthy that means more spending power in the hands of customer which in turns creates multiple effect to economy growth. Housing Loans are taken for the period of 15-20 years and increase in ROI have lesser impact on consumer monthly cash flow. Moreover 2 to 3 interest cycles will play out during the loan timeframe of 15-20 years of the borrows, & interest rates may also come down during such long tenures as we saw in the past years.
The Country like India, there is huge potential for economic growth due to manufacturing incentive under Make-In-India project. Moreover, we are now at No 1 in population of world which means higher housing demand for population and more spending power due to employment generation in manufacturing sector will sustain the Housing Demand in FY 24.