New Delhi: The Reserve Bank of India (RBI) has increased the policy repo rate by 225 basis points between April 2022 and December 2022 to fight the surging inflation. It’s highly unlikely that the rate hike for the current fiscal has gotten over, as the central bank’s Monetary Policy Committee (MPC) is scheduled to meet during February 6-8, 2023. But we’re not talking about the repo rate hike, nor about the central bank’s monetary policy meetings, rather we’re considering the rate hikes to be one of the major factors affecting a person who availed/is going to avail of a home loan.
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As the central bank rates hikes, banks pass on these rate hikes to loan borrowers by interesting rates. Those who took a loan on floating interest rates will be greatly affected as banks pass on this burden of rate hikes.
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Speaking about the impact of rate hikes on home loans and the real estate sector in general, Atul Monga, Founder and CEO, BASIC Home Loan said, “The home loan/real estate sector is an important part of the Indian economy and is facing some challenging times due to the rising interest rates. To foster growth in the sector, lenders need to offer competitive loan products with sensible pricing and attractive repayment terms. This can help the sector stay competitive and provide budget certainty to the customers. Also increasing interest rates can have a major impact on the home loan and real estate sectors, making affordability a major concern for buyers.”
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The central bank will continue to impose rate hikes in order to curb inflation. But the question is what relief can we expect from the Union Budget?
The government needs to take steps such as hiking the tax rebate on housing loan interest under Section 24 (b) to Rs 5 lakh”, said Atul Monga. “Also, the current price band of Rs 45 lakh for a property to be considered under affordable housing is not appropriate in most of the cities in India, it should be increased to Rs 75 lakh or more”, he added.
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How’s the current GST structure impacting the real estate sector?
“The current GST structure for under-construction and affordable housing creates an additional burden on developers, leading to a higher cost of properties for buyers. This leads to a higher price of a house because the GST on steel and cement is 18% and 28%, respectively and developers cannot claim tax credits for GST paid on input items,” said Atul Monga
How can this problem be tackled?
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“To reduce the burden and increase the affordability of properties, the government can consider restoring Input Tax Credit (ITC) in the upcoming budget. Further, capping GST at 1% for under-construction projects and reducing raw material costs such as cement and steel can help encourage more people to buy affordable homes”, said Mr Monga. “This will not only enable developers to reduce the prices of properties but also increase the availability of affordable housing for buyers. This is to ensure that housing remains accessible and affordable for people across income groups, otherwise, it could lead to unease in the markets,” he added.
