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Real estate demand could take a hit this holiday season after RBI . rate hike

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  • As mortgage more expensive, developers expect impact on festive demand.
  • Higher interest rates are likely to affect first-time buyers and affordable home buyers the most.
  • The demand for luxury and premium properties may not be affected as much.

Real estate demand could take a hit this holiday season as India’s central bank raised interest rates by another 50 basis points. Rising inflation and steady rise in interest rates have increased the purchase cost of property more expensive.

The Reserve Bank of India has raised interest rates by 190 basis points in the past five months, raising borrowing costs for home buyers significantly.

Developers believe that real estate demand could be hit during the current holiday season as buyer sentiment could take a dent. Anarock’s recent consumer sentiment survey also revealed that at least 61% of people saw high inflation as a major concern, seriously impacting their disposable income.

“With this repo rate interest rate hike, home loans will soon become more expensive. This could affect home sales to some extent during the upcoming festive quarter, especially in the affordable and middle class homes,” said Anuj Puri, president of the Anarock group.

How will this affect the demand for real estate?

Inflation has already tarnished the average consumer’s wallet and rising interest rates will add to the burden. As home loan interest rates start to rise, general housing demand may face turbulence, said Ramani Sastri, chairman and MD, Sterling Developers. “Recent successive increases in the repo rate had already increased buyers’ total cost of acquisition. With borrowing rates rising gradually, homebuyers’ fears can quickly set in and they may adopt the wait-and-see attitude,” Sastri said.

With the central bank sticking to its stance on housing withdrawal, further rate hikes are not out of the question and could further impact affordability as low interest rates boosted demand for real estate after the pandemic.

Higher rates would affect the affordable housing segment more as they would hit new home buyers. “The impact of the rate hike will be primarily on the affordable housing side, which is driven primarily by sentiment and especially by first-time homebuyers who rely heavily on home loans,” said Lincoln Bennet Rodrigues, chairman and founder of The Bennett and Bernard. Company.

However, the disposable income of home buyers has been much better in recent years, leading to better lifestyles and changes in people’s preferences. The current year has seen a greater number of jobs added, mainly driven by the IT sector, which added nearly 3 lakh jobs in 2022. This could improve the affordability of the mid-range segment.

“The perception of lifestyle has changed, driving demand for premium housing. While the recent hikes in key policy rates by the RBI to contain high inflation have led to a moderate rise in loan rates, but home loan affordability is still very good,” said Rodrigues. But this may be a minority view, as higher costs often affect demand.

ALSO SEE:
RBI raises repo rate by 50bp, pushing it to three-year high of 5.9% – Das says inflation is ‘alarmingly high’ in all jurisdictions

Markets shrug for 50 bps salvo by the Reserve Bank of India’s as gains largely priced in

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