Housing sales may dip 10 per cent in Q2CY2022 on rate hike and inflation

After record sales in the first quarter of CY2022, housing sales may witness a 10% sequential decline in the second quarter of CY2022 on account of increasing interest rates, inflationary pressure and rise in building material costs that have pushed up property prices, according to real estate industry experts. 
“Q1,2022 has been one of the best quarters in terms of housing sales since 2015.

ANAROCK data indicated sale of 99,550 units across the top 7 cities. But given the factors mentioned above (increase in overall cost of acquisition), we may see at least 10% decline in Q2, 2022 against the preceding quarter,” Anuj Puri, Chairman – ANAROCK Property Consultants told TNIE.

According to Puri, while the ‘real’ impact of the rate hikes on the housing sales are yet to be seen, the all-time best low interest regime - one of the key factors driving home sales amid the pandemic – has ended. This coupled with the general inflation at record high and rising inflationary trends of basic input costs like cement, steel, etc. is ultimately increasing the overall acquisition cost for homebuyers. This is likely to impact residential sales in the coming months, he added. 

Following the Reserve Bank of India’s (RBI) surprise 40-bps rise in its benchmark repo rate and a 50-bps increase in the cash reserve ratio (CRR), most banks have increased their lending rates.

Housing Development Finance Corporation (HDFC), the country’s largest mortgage lender,  has raised interest rates on its home loans by 5 basis points from June 1 after raising rates by 30 basis points last month, post the hike in repo rate. It had also raised the same by 5bps on May 1. Other lenders such as ICICI Bank, SBI and Punjab National Bank have raised interest rates too. 

Vivek Rathi, Director - Research, Knight Frank India, said a 1% increase in home loan interest rate reduces house purchase affordability by 7.4%. He added that, “We are on a landscape of rising interest rate and increasing property price, which will put pressure on affordability if they move beyond income growth.” 

Dhaval Ajmera - Director of Ajmera Realty and Infra ltd - however, believes that most of the home sales are coming from genuine homebuyers for actual use and that rise in key input costs is largely due to supply-side bottlenecks and will ease out in due course of time. “We believe the long-term structural growth story of India is intact and will continue to drive overall demand and consumption for key sectors of the economy,” said Ajmera. 

What may worry homebuyers more is that the interest rates are expected to move up further as the RBI governor pointed out in its MPC meet of June 8, they would again look at raising the policy rates.