With the third hike in quick succession this August, after 40 bps in May and 50 bps in June, RBI has rolled back all cuts during the pandemic and taken rates back over the pre pandemic levels. This would also result in an increase in the interest rates for housing EMIs. While this would definitely impact housing demand in the short term, I believe India’s real estate ecosystem is now on very strong grounds and would only continue to grow going forward.
These are some of the expected trends that can anticipate post the hike –
1) Short-term impact on demand, but stability in the long run
The current RBI repo rate increase of 50 basis points may have a minimal impact on real estate demand for a short period of time as the strong customer demand and rising income stability have kept the real estate markets in a favorable position. In addition, real estate developers are working toward finding a solution to bring stability and provide consumers with flexible payment options, allowing them to pay a portion of the booking fee and the remainder after possession. With the festive season coming, customers should actively seek out such offers that can assist them in making the best decision. As a result, demand for all types of properties remains high, and the circumstance is unlikely to change in the foreseeable future.
2) Emerging micro-markets to see a surge in demand
Some major micro-markets had already emerged in Mumbai in areas such as Powai, Chandivali, and Mulund in recent years. Investing in micro markets gives the luxury to the consumers of saving travel time while commuting from office to home. Because of the increased number of retail, industrial, and commercial activities, as well as the growing cosmopolitan population, these areas are gaining traction in the buyer market. Furthermore, these areas provide compelling price options that are comparatively lower than the prime areas of the city.
3) Impact of hike in Repo Rate
There is a major shift in buyer expectations and mindsets toward homeownership, which may help to sustain the house buying trend.
The increase in repo rates would raise the cost of home loans in India, as banks would pass the cost on to the customers. This could impact the affordable housing segment, which is one of the key drivers of the housing market in the world’s second-most populated country and Asia’s third-largest economy. Existing mortgages may suffer as well, but only those with floating interest rates. The increased repo rate will have no effect on home loans with fixed interest rates.
With the home loan rates now expected to settle around 8 per cent per annum, might put a short-term psychological dent on the demand for the mid and affordable housing segment, but I don’t see that continuing for long. With pent-up demand for housing post pandemic, strong economic growth and a stable job market, we expect the demand momentum to continue in India’s residential housing segment.