In a bid to curb the rising inflation and tackle the impact of geopolitical tensions, the RBI had increased the repo rate to 4.40 percent, which was recently hiked to 4.90 percent, in turn, leading to an increase in home loan rates by several financial institutions and banks. Nonetheless, this move is less likely to put a significant damper on the home buyer’s sentiment as the home loan rates post increase will be in the range nearing 7-7.5% percent. This is still attractive for home buyers, particularly against the backdrop of price increases because of rising input costs.
The housing demand is expected to grow by 5 to 10 percent in six of India’s prime cities – Pune, Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Kolkata, and Hyderabad despite rising property prices, interest rates, and a high-based effect.
The large demand for houses
Following a two-year lull, the demand for housing is seeing robust growth. The pandemic has brought about a change, a shift in the buying sentiment that has opened a new era of investing in the mid and affordable residential segment. This is due to the fact that more individuals in the post-covid world are beginning to see the value of home ownership, which has increased demand for affordable housing.
Gradual rate hikes
It is expected that a rise in interest rates largely depends on the premise that rate hikes by the RBI will be gradual. Furthermore, in a fiercely competitive market, large housing financiers would also refrain from raising home loan rates continuously, also meaning a bare impact on housing demand.
Current home loan rates are affordable as opposed to pre-covid levels
With home loan rates have already gone down considerably in the recent past, the rate hike won’t be seen as having as much impact. Furthermore, even in the light of a probably continued increase in the rate hike in the upcoming months, home rates are expected to be still affordable in comparison to the 8 percent just before the coronavirus pandemic era – which would be attractive to several borrowers.
Income growth is outpacing real estate price growth
Besides, the fact remains – when the interest rates were historically low over the last two years, housing demand was quelled as incomes did not rise. However, now, it’s a different story.
In the post-Covid scenario, incomes are rising steadily. Home prices are suppressed while affordability has improved. The accumulated demand for housing is anticipated to start emerging, irrespective of the rise in rates.
The silver lining for luxury home buyers
Meanwhile, luxury home buyers remain unfazed. This is because the end-users of this category are at the top of the pyramid and might not defer their purchase decisions, unlike other housing categories.
The luxury segment of the industry has seen a boom especially due to the Covid lockdown that ignited a growing need for space and comfort.
However, while acknowledging the fact that rate hikes may play a role in subduing the growing house-buying sentiment, one also must concede that that factor alone cannot be the sole primary reason why a committed buyer decides against not seeking financing. An extensively wide range of fundamental factors like geographies, demographics, and the growing culture of nuclear families, amongst other things come into play here. Besides, according to Bank Bazaar’s annual Aspiration Index Survey, the two most vital things to Indians are home ownership and saving for children’s education – even adding that Indians will seek to fulfill this aspiration regardless of the challenges they face.
According to Real Insight Residential – January-March 2022, 70,623 units were sold in Q1 2022 as compared to 66,176 units sold in Q1 2021, showing 7% annual growth. On the supply side, a total of 79,532 units were launched in Q1 2022 as compared to 53,037 units in 2021, demonstrating YoY growth of 50%.
Apart from this, the industry has been witnessing home loans that were as high as 17 to 18 percent in the past. Today though, they are on the low end of the spectrum, which is why a minor increase will not have a substantial effect on the demand for home loans.
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