While the naysayers may be predicting the recent hike in the repo rate by the Reserve Bank of India (RBI) as a move that would upset the apple cart for developers during the ongoing festive season, the industry has valid reason to think just the opposite. This hope is not just wishful thinking; a look into sector data established that fact.
According to a recent report by Knight Frank India, home sales in India’s eight prime residential markets in the July-September quarter of 2022 increased 15% yearly on sustained demand even though many banks announced interest rate hike during the quarter. New launches across these cities also increased by the same percentage annually amid demand improvement. The report also underscored the fact that residential real estate saw the sharpest recovery in the post-pandemic period due to sustained buyer confidence in immovable assets.
Media reports also indicate, many high-value property deals materialized during the recently concluded Navratra festival, during which many celebrities, including superstar Madhuri Dixit (Rs 48 crore) and businessman MD Achal Bakeri (Rs 72.85 crore), booked their homes in Mumbai.
Can rising interest rates upset buyer sentiment?
There is no denying the fact that the increase in the repo rate, which now stands at 5.90%, would definitely impact housing affordability. Recall here that the RBI has increased its benchmark lending rate by 190 basis points since May 2022 through four consecutive hikes to battle stubbornly high inflation and, more recently, to arrest the swift fall of the Indian currency. Following the move, several banks in India hiked home loan interest rates to over 8% with effect from October 1, 2022. This move comes at a crucial time when the festive season in India has started—a time traditionally considered highly auspicious to make property purchases.
The increase in average property cost in the past one year also puts further pressure on pricing, but this has done little to make any negative impact on buyer spirit, which has remained quite robust. Much of this positive sentiment could be attributed to a change in attitude brought forth by the coronavirus pandemic.
Most developers, in fact, expect home sales during the October-December period to touch a decadal high as amid an improvement in personal spending capacity of homebuyers. There is also an underlying pent-up demand for property because most buyers have been postponing their purchase decisions due to prolonged periods of lockdown and lockdown-like situations in the past two years.
As income outlook improves, most buyers would try to make the most of the opportunity provided at this crucial juncture, from where prices might tread upwards quite swift— while the RBI is expected to increase the repo rate by at least another 35 basis points in its upcoming monetary policy announcements, developers would also have to eventually pass on the entire burden of cost increase on end-users. So far, buyers have the option to grab a deal of their liking and enjoy festive discounts like complete waiver of stamp duty payment and easy payment options if a book a property during the festive season.
Growth in India real estate is also being driven by the demand from non-resident India buyers who have found a perfect opportunity to invest in their home country as a strong dollar provides them with improved purchasing capacity. At a time when the rupee is hovering at below-80 level against the US dollar, property purchases in India for an NRI buyer are highly beneficial from an investment point of view.
The bottom line
Sector experts are of the view that the demand for residential segment would remain robust for another two years, any hike in interest rates notwithstanding. While the pandemic has titled the good opinions of byers in favour of home ownership, a sharp rise in rentals is furthering the case for investments rather than leasing.
