As the realty sector is highly dependent on bank financing for both builders and customers, it was anticipated that rising rates will impact post-pandemic recovery and slow down sales.
New Delhi: The advent of COVID-19 and the subsequent lockdown brought the Indian economy to a standstill, with real estate bearing the brunt of the impact. The realty sector in India had taken a massive hit which was clearly visible in the unsold inventory list during the said period.
However, along with the turnaround in the economy, the real estate sector in the country too seems to be bouncing back and has been on an upswing since the second half of the previous year.
As the realty sector is highly dependent on bank financing for both builders and customers, it was anticipated that rising rates will impact post-pandemic recovery and slow down sales.
We had a candid chat with a social media influencer in the situation covering the real estate.
Notwithstanding the RBI's recent decision to hike the repo rate, which will consequently make home loans more expensive, realty experts feel that the demand for houses will not witness a massive impact, finfluencer Neha Garg has opined.
Interest rates have a profound effect on the value of residential properties; it determines the cost of a loan. They force banks and other lenders to charge a higher interest rate on the principal amount in loans, including home loans.
In simple terms, when the interest rate is low, it is good news for property buyers – since credit is cheaper and mortgage rates are decreased. A hike in the interest rates has the opposite effect – as loan rates increase, houses become less affordable, Garg underlined.
However, this time, the scene is different. This rate hike has a moderate impact on residential property sales. The Real estate market moves in a cycle. After facing a long downfall due to Demonetization, GST and Covid, its long-term upward cycle has now started, the finfluencer commented.
Recently RBI increased the interest rates by 50 bps to pre-pandemic levels. Today home loan interest rate is around 8% PA. But, despite high-interest rates, the demand for house property is rising continuously.
While analyzing the current situation of the real estate market, Neha highlighted that according to the research by ANAROCK, approximately 1.85 lakh units were sold in the first half of 2022 across the top 7 cities. Considering the positive outlook for the real estate sector, it appears reasonable that India’s residential sector is set to perform exceptionally well in 2022. Home sales will grow this year due to the increasing preference for larger homes, and better amenities, she further added.
According to Neha some of the reasons behind this high demand are:
1. Millennials are buying their first home. There’s a rise in preference for housing properties among millennials.
2. Many people believe that real estate is a safer investment for them.
3. Due to the fall in Rupee’s value, the buying power of NRIs has increased. NRIs are buying houses in their hometown in India.
4. A majority of the working professionals return to offices, it will positively impact the demand for the residential segment.
5. Most of the rating agencies have estimated the growth of India in the range of 8-9%. Due to this healthy economic growth, there will be a rise in jobs which will further result in high housing demand.
So, we can say that 2022 is going to be the year of residential real estate, driven by the millennial homebuyers who are investing in real estate more than ever before, she further added.
While decoding some data Garg pointed out that the sales in the first quarter of 2022 surpassed 99,550 units. Delhi NCR recorded the highest ever growth in sales of new homes, i.e. 123%. Due to this high demand, the market witnessed an increase in capital values of residential properties.
The finfluencer highlighted that in FY 2023, the growth will continue. Real estate in tier two and three markets will also climb fast because of sustained infrastructure investments, increased connectivity, and better job opportunities.
As per the Research by the “India Brand Equity Foundation� Real estate sector in India is expected to reach US$ 1 trillion in market size by 2030, up from US$ 200 billion in 2021, and contribute 13% to the country’s GDP by 2025. This time, the market is not driven by sentiments, but by the strong fundamental demand. If you are planning to buy a house, then Home loan rates have been on the rise gradually, which can signal that housing values will also be on an upward trajectory. It is always better to buy a home when the market conditions are in your favour, Garg commented.