Interest rate hike leads to lag in sales cycle, but persistent demand remains unhindered.

– Dr. Niranjan Hiranandani – MD- Hiranandani Group

The prolonged rate hike by 35bps to 6.25% still remains in the low regime of interest rate zone. The floating home loan interest rate due to rate hike may hurt temporary EMI payouts, but in the long tenure it averages out positively. Today, the growth impetus in the housing sector prevails on the back of real demand translating into the actual transactions, well exhibited by incremental sales registered in the market. The demand for residential real estate has expanded multifold across segments and geographies corroborating the improved bank credit figures in the retail home loan segment. The sector continues to exude signs of a bullish growth curve as the promising macro-economic growth vectors bode well to fuel investment inflow, enhanced capex cycle and new inventory in the market. The rebound in urban and resilient rural housing demand with improved rental yields has garnered traction for housing demand.

Though, the property market may experience a lag in sales to accommodate rising EMI payouts and simultaneously evaluate postponement options for a stipulated period of time.With consecutive repo rate hikes of nearly 2 % since May 2022, home loan interests are now inching closer to 10%. Higher EMI outflow coupled with rising home prices, due to higher construction costs raise concerns among the real estate stakeholders be it developers or the potential homebuyers. Until now, the rising cost of borrowing for both individuals and corporates were well accommodated, but any further hike will dent the consumption sentiment. Home loan interest rates moving into double digits will add pressure on housing sales in the mid housing segment. Decadal low interest rates have acted as a growth catalyst fuelling homebuying rally and leading to the resurgence of the real estate sector. The persistent home ownership sentiment rides too high amidst geo-political turbulence, spiraling uncertainties, and an escalated inflation crisis on the back of stability and social security that this asset offers.

RBI should act prudent while encompassing the impact of rate hikes on the real estate sector which is labour intensive as well as interest rate sensitive.  Calibrated measures like a combination of fiscal and monetary tools won’t dent the home affordability quotient especially in affordable and mid housing segment which is price sensitive.