RBI Rate Hike Could Make Festive-Season Home Buying More Expensive

The latest RBI rate hike homebuyers are facing could make festive-season property purchases more expensive, particularly for buyers already working with tight budgets. The Reserve Bank of India raised the repo rate by 25 basis points to 5.50% on Wednesday, marking its first increase since February 2023.

The move comes as inflationary pressures rise and global economic uncertainty remains elevated. Since the repo rate influences borrowing costs across the financial system, higher rates could eventually translate into more expensive home loans and higher EMIs for some borrowers.

First-time buyers could feel greater pressure

The festive season is traditionally an important period for India's property market, but higher borrowing costs could make some buyers more cautious before committing to a long-term loan.

Advertisement

Industry executives expect first-time and mid-income buyers to be particularly sensitive to changes in EMIs. Even a relatively small increase in the interest rate can add to the overall cost of a home loan spread over many years.

However, the rate increase may not be enough to deter buyers who have already finalised their finances and are committed to purchasing a home.

Luxury housing may remain resilient

The impact could vary significantly across property segments. Industry estimates suggest premium and luxury housing may remain comparatively insulated from the increase, with demand in the segment expected to stay strong during the festive period.

Lower and mid-segment housing, meanwhile, could see buyers take longer to finalise their finances.

A prolonged period of higher borrowing costs could also encourage buyers to consider ready-to-move properties over new launches, as they may become more cautious about taking on additional financial commitments.

Buyers may get more negotiating power

If some prospective buyers postpone purchases, developers could face slower conversions during the festive quarter. A moderation in demand could potentially give buyers greater negotiating power, particularly if developers are looking to maintain sales momentum.

The rate hike could also affect businesses beyond real estate. MSMEs typically increase inventory, production and hiring before the festive season and often depend on working capital and short-term credit. Higher borrowing costs could therefore put pressure on margins for smaller businesses.

Still, industry representatives have pointed out that housing remains a long-term purchase, with home loans often extending for 15 years or more. Interest rates can move both upwards and downwards during that period.

For now, the festive housing market may become more cautious rather than experience an immediate sharp slowdown. Buyers could spend more time comparing loan offers, calculating EMIs and negotiating property prices before making their final decision.

Relevant official source: Reserve Bank of India