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Rate increase to affect demand for mid- and affordable housing, experts say

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  • Real estate experts say housing demand will remain strong as long as home loan interest rates remain within the single digits.
  • Affordable and mid-range housing are the most price sensitive, and the rate increase may affect some delay in this segment.
  • Experts do not expect a significant impact on the demand for luxury and luxury homes.

India’s housing market, which has gained momentum since the pandemic, could slow growth momentum as the central bank hikes rates for the fifth time this year.

Prior to the start of the cycle of rate hikes in May, the base rate was 4% – a factor that helped revive home sales during the pandemic. This coupled with the lockdown-fueled love of homeownership led to a resurgence in housing demand.

However, the trend could cool, experts say, as they expect lenders to pass on the rise in interest rates to home loan consumers. After the interest rate hike of 35 basis points on 7 December, the repo rate now stands at 6.25%.

“Currently, interest rates are at their highest level since August 2018. After four consecutive rate hikes this year, the re-rate hike will undoubtedly raise home loan rates. The impact on the housing market will be moderate as long as interest rates remain in the single digits (mainly within 8.5%). Home sales volumes will be impacted in the coming months if they break this point, especially in the affordable and lower-middle-class housing segments,” said Samir Jasuja, founder and general manager of PropEquity – a real estate research, data and analytics firm.

Moreso, personal finance experts believe the last four increases have exhausted the legroom to increase home loan terms without impacting EMIs. This time around, EMIs will be higher, making homeownership an expensive affair.

Piyush Gupta, general manager, capital markets and investment services at Colliers India, an investment management firm, also said that affordable and mid-range housing is the most price sensitive.

“We could see some slowdown in the near term, with an increase of home loan rates. We do not expect a significant impact on demand for high-end and luxury homes,” said Gupta.

Rates for home loans in a few figures


Amit Goyal, CEO of India Sotheby’s International Realty said home loan interest rates have risen by 150 basis points following the rate hikes. Despite this, demand for housing in the seven largest cities has been very strong, he says.

“We believe this momentum should continue until home loan rates remain in the single digits. We just hope that strong GDP growth, a stable job scenario and an increased capex investment cycle will keep real estate demand intact,” says Goyal.

Anuj Puri, chairman of Anarock Group, also believes that as long as interest rates remain below 9.5%, this will only have a moderate impact on home sales. “If they break through this point, we will see some real pressure on residential sales volumes in the coming months, especially in the affordable and lower mid-market segments,” he added.

In the past few quarters, as home sales increased along with new launches, real estate prices went up as well. According to a report by CREDAI – Colliers – Liases Foras, property prices rose 6% in the top eight cities in the September quarter compared to last year. The drivers for the price increases are inflation and increases in input costs.

Reserve Bank of India Governor Shaktikanta Das also said that while the battle against inflation continues, inflation is expected to reach 6.6% in the third quarter of the current fiscal year and slow to 5, 9% in the fourth quarter. . This gives the real estate players some comfort.

“The gradual decline in inflation is also expected to partially ease input cost pressures and give developers more room to offer competitively priced homes to buyers and keep home buying affordability within reach,” said Samantak Das, chief economist and head of research and research. REIS, India, JLL.

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Be Prepared to Pay Higher EMIs: No Room for Loan Maturities to Increase After RBI’s Latest Rate Hike

RBI raises repo rate by 35 bps to 6.25% – Das says bank has ‘Arjuna’s eye’ on inflation

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