Rate hike to affect housing demand in the mid and affordable segments, say experts

• Real estate experts say that housing demand will remain strong as long as home loan interest rates remain within single digits.
  
  
• Affordable and mid-range housing are the most sensitive to prices, and the rate hike might affect some slowdown in this segment.
  
  
• Experts do not expect any significant impact on the high-end and luxury housing demand.
  

The Indian housing market, which has picked up pace since the pandemic, might see a slowdown in growth momentum as the central bank raised interest rates for the fifth time this year.

Prior to the beginning of the rate hike cycle in May, the base interest rate was at 4% — a factor that helped revive housing sales during the pandemic. This combined with the lockdown-fuelled love for home ownership saw a revival in housing demand.

However, the trend might be cooling off, say experts, as they expect lenders to transmit the rise in interest rate to home loan consumers. After the 35-basis point rate hike on December 7, the repo rate now stands at 6.25%.

“Currently, the rate is at its highest level since August 2018. Following four consecutive rate hikes this year, the repo rate hike will undoubtedly raise home loan interest rates. The impact on housing will be moderate as long as interest rates remain in the single digits (mainly within 8.5%). Residential sales volumes will be impacted in the months to come if they breach this point - especially in the affordable and lower mid-range housing segments,” said Samir Jasuja, founder and managing director, PropEquity – a real estate research, data and analytics company.

Moreso, personal finance experts believe that the last four hikes have exhausted the legroom to increase home loan tenures without an impact on EMIs. This time around, EMIs will be higher making home ownership an expensive proposition.

Piyush Gupta, managing director, capital markets and investment services at Colliers India, an investment management company also said that affordable and mid-range housing are the most sensitive to prices.

“We might see some slowdown in the short term, with an increase in housing loan rates. We do not expect a significant impact on the high-end and luxury housing demand,” said Gupta.

Housing loan rates within single-digits

Amit Goyal, CEO of India Sotheby's International Realty said that home loan interest rates increased by 150 basis points after the rate hikes. In spite of it, demand for residential property across the top seven cities has been very strong, he says.

“We believe this momentum should continue till the home loan rate remains in the single digits. We just hope that strong GDP growth, a steady jobs scenario and an elevated capex investment cycle will keep demand for real estate intact,” says Goyal.

Anuj Puri, chairman of Anarock Group too believes that as long as interest rates remain below 9.5%, it will only have a moderate impact on housing sales. “If they breach this point, we will see some real pressure on residential sales volumes in the months to come – especially in the affordable and lower mid-range housing segments,” he added.

Over the last few quarters, as housing sales increased along with new launches, property rates too have been going up. According to a CREDAI – Colliers - Liases Foras report, property prices rose 6% in the top eight cities in the September quarter compared to last year. The drivers for the price hikes are inflation and hike in input costs.

The Reserve Bank of India Governor Shaktikanta Das also said that while the battle against inflation was still on, inflation is expected to come in at 6.6% in the third quarter of the current financial year, and to slow down to 5.9% in the fourth quarter. This is giving some comfort to real estate players.

“The gradual decline in inflation is also expected to mitigate the input cost pressures partially and provide legroom for developers to offer competitive-value homes to buyers and keep home purchase affordability within range,” says Samantak Das, chief economist, and head of research and REIS, India, JLL.

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