RBI rate hike effect? Festive home sales may take a hit

Not only lending rates, but gradual increases in property prices and fewer benefits offered by the big developers may also keep a section of buyers. 

Published: 11th September 2022 11:42 AM  |   Last Updated: 11th September 2022 11:42 AM   |  A+A-

Express News Service

NEW DELHI:  Three consecutive rate hikes by the RBI that jacked up interest rates on home loans to pre-covid levels may dampen housing sales in the ongoing festive season. 

Not only lending rates, but gradual increases in property prices and fewer benefits offered by the big developers may also keep a section of buyers. 

“Even when housing demand remains strong, home loan rates and developer prices have increased in the wake of 140 bps repo rate hike by the RBI and input costs. Moreover, Grade A (large and listed) developers are reporting high sales despite a price rise, and this will prevent them from any reductions. At the most, only the smaller developers may reduce prices to attract buyers,” Anuj Puri, Chairman, ANAROCK Group, told TNIE. 

Puri expects sales in the upcoming festive quarter (Oct-Dec) will remain more or less the same as that in the corresponding period of 2021.

As per ANAROCK Research, as many as 91,000 units were sold during the festive quarter - Q4, 2021 (Oct-Dec). Historically, the festive quarter experiences maximum sales, followed by July- September quarter. 

“The reason (for high sales in Q4, 2022) being that last year there was a pent-up demand in housing and rates were their lowest best at the time. Most developers including the large and listed players were sweetening their deals by doling out offers and discounts to cash in on the demand,” added Puri. 

Dhaval Ajmera, director at Ajmera Realty Infra, however, feels like in previous years, this festive season is expected to see a paradigm shift in buyer’s psyche.

They are now more cautious but smarter than before and plans strategically before investing, he says.  

“Majorly three factors influence people to  buy properties during the festival seasons - festival is seen as an auspicious time to invest in something, new construction projects are launched during this time, and real estate developers are known to offer interesting schemes to attract buyers to their projects,” added Ajmera 

More Pain in Near Future? 

With the European Central Bank last week hiking key rates by 50 bps and talk of the US Federal Reserve taking aggressive steps to tame the inflationary pressure, there are high chances the RBI may follow the global practice.  

Any further hike in rate by the central bank may prove to be a major spoiler for homebuyers and for the overall housing market.

In the last three months, RBI has hiked rate by 140 bps -- 40 bps in May, 50 bps in July, and 50 bps in August.

This has pushed home loan rates across banks to about 8%, a big setback for buyers who had availed finance when rates offered by banks had rock-bottomed to 6.50% and is turning out to be a deal breaker for prospective buyers.  

On every 1% rise in loan rates, the EMI for every Rs 1 lakh of home loans is likely to increase by Rs 60-70 per month. 

“It is anticipated that the RBI will hike repo rates by about 50 bps in the upcoming bi-monthly policy meets in October and December, which inevitably could impact the ongoing sales momentum. If at all, this doesn’t happen and along with it the government also rolls out any new incentives for the housing sector, only then we may see sales rising in this festive season in comparison to a year ago period,” said Puri.

He added that this also comes along the inflationary trends of basic raw materials including cement, steel, labour cost etc that have led to rise in property prices recently. 

Together both these factors – rising loan rates and construction costs - would go on to impact residential sales that did fairly well in the first half of 2022.  

Strong Fundamentals May Support Growth 

Many realty developers and industry experts are optimistic about sales in the on-going festive season because they believe that the current growth cycle is led by fundamentals such as strong buyer demand rather than speculation.

To note, housing sales, by some estimates, in the first half of 2022 (January-June) were the highest in over a decade and second only to the first half of 2010.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, said, “While we expect the continued inflation and rising cost of financing to impact stakeholder sentiments in the near term, the sector’s overall health is likely to remain strong owing to positive homebuyer sentiments.”

Magazine added, “In addition, there has been an increase in appetite for home ownership post the pandemic, and with the upcoming festive season, it might generally withstand the marginal
 changes in loan rates. Going forward, capital value growth will likely remain range-bound across select pockets and categories.”

Sector outlook

  • As per ANAROCK Research, as many as 91,000 units were sold during the festive quarter  Q4, CY2021 (October-December).

  • Anarock estimates similar numbers during this year’s festive season.

Concerns

  • The increased cost of finance.

  • More rate hike are expected by the RBI.

  • The inflationary trend in the cost of raw materials.

  • Shrinking discounts/offers by developers.



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