Most real estate developers believe that rising rates will hit the sector, but others say strong festive demand and offers may keep it floating
Rising home loan rates may impact the real estate sentiment, which is being seen as robust with the onset of the festive season, said experts in the real estate industry. With the Reserve Bank of India's (RBI) monetary policy committee raising repo rates yet again to 5.9 per cent on Friday, home loan rates are expected to rise in the near future.
RBI has increased the repo rate by 190 basis points in the last five months. "It is important to understand that policy rates and regulation will decide the long-term growth of the economy and the real estate sector. Falling rupee is also a major concern amidst global uncertainty, besides high fuel prices," says Amit Goyal, chief executive officer (CEO), India Sotheby's International Realty, a real estate firm, in a statement released on Friday.
The real estate sector had started seeing gradual recovery across key property markets, driven primarily by end-users, and this decision will have an adverse impact on the interest rate-sensitive sector. "Subsequent rate hikes will also mean a deterioration of affordability as low-interest rates have been the biggest factor in the resurgence for real estate demand in the last few years," says Ramani Sastri - chairman & managing director (MD), Sterling Developers Pvt. Ltd.
Green Shoots Remain
With the real estate sector looking up recently, the rate hike may not hit it significantly since the rate increase was on expected lines, and the festive demand is strong.
Similar to the 2010-2012 period, India's residential industry is experiencing a prolonged and sustained growth cycle, although demand from homebuyers is the primary driver this time. In fact, on a same-period comparison, sales in the first half of 2022 (January-June) were the greatest in over a decade and second only to the first half of 2010.
Ramesh Nair, CEO, India, and MD, Market Development, Asia, Colliers, a real estate company, believes that with the festive season in the offing, developers are likely to dole out attractive schemes to attract fence sitters and first-time homebuyers. "As the rate hike was on expected lines and the market has largely recovered from the pandemic lows, the home buying sentiment is not likely to be impacted significantly," he said in a statement.
Real estate developers are in the hope that from home buyers' perspective, home loan rates will remain below 9 per cent per annum, and festive discounts in the market will counter the increased repo rate.
"We are highly bullish that sales data would increase approximately 20 to 30 per cent in this quarter and YOY basis also," says Pradeep Aggarwal, founder and chairman, Signature Global (India) Ltd, a real estate company, in a statement.