By Soniya Gaonkar on Aug 22, 2022 12:24:36 PM
In May 2022, the RBI (Reserve Bank of India) increased the repo rate by 40 basis points, making the new repo rate 4.40 percent against the earlier four percent.
The increment came in after about two years until the RBI maintained the old repo rate. The decision sparked discussion and debates between economists. But what does this spike mean for the common man, especially the buyers of commercial properties in Pune? Let’s examine its impact through this article.
What is a Repo Rate?
Let’s first understand what the repo rate is. It will help us better understand its effect on the common man and real estate property buyers in particular.
Repo rate stands for Repurchasing option rate. It is the rate at which the RBI lends money to commercial banks during a cash crisis. Further, these banks provide money on loans to the common people. While the masses look up to banks for money, banks also often run out of cash for various reasons. In situations like these, they might need money to provide home loans, vehicle loans, etc.
During a financial crisis, banks request to borrow money from the RBI at a particular interest rate and then lend it to their borrowers at a higher one. This rate is adjusted depending on the market inflation. It forms a significant factor influencing the country’s inflation, money supply, and liquidity.
RBI provides this money to banks against various collaterals for a short duration. Now, when the loan tenure is over, banks buy their collaterals back at a predetermined price, thus making it the repo rate!
Will the Rising Repo Rate Matter to Commercial Property Buyers?
The rise in the repo rate can prove concerning for residential buyers. Either their EMI will increase or their loan tenure. The latter could be subject to discussion with the respective bank, though. Nevertheless, the bottom line is, yes, the increased repo rate will affect residential property buyers.
But what about commercial properties in Pune?
Commercial real estate will stay afloat for various reasons. Per experts, seasoned investors distance themselves from conventional investment options like FDs, bonds, etc., that get affected due to inflation.
Staying away from these traditional investment alternatives can help them diversify their portfolio and encourage investing in options like commercial real estate. What could be more exciting for them is the increased repo rate that will help them increase their rental income.
Fractional Ownership – The Upcoming Trend in India
People looking to invest in commercial real estate can choose the fractional ownership option. If they feel buying a particular property is beyond their financial reach, they can reduce their investment share with fractional ownership.
Fractional ownership functions almost like crowdfunding in real estate. It is a revolutionary trend that makes commercial real estate investments accessible and feasible to retail investors. Thus, it eliminates the notion that commercial real estate investment is reserved only for the elite.
Thus, if you think the increased repo rate has affected your buying capacity, you may look for fractional ownership in a property. It will help you reduce your investment share. Of course, it will also affect your return share. But investing in something potentially promising is better than not investing at all.
So, even if the increased repo rate will affect commercial real estate and its rates. A slowdown in sales is less likely to happen.
First, the rental returns of commercial properties are higher than residential properties. And an increase in the repo rate will also help increase property rents. So, the latter can offset the repo rate increment.
Secondly, exploring the fractional ownership option may help reduce the investment share while still enabling you to become the owner of commercial property in Pune. Nevertheless, you must make an informed decision after a careful review of the property, legal aspects, etc., to avoid further hassles.
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