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Homebuying Sentiment Remains Unshaken Despite Rising Repo Rate

By Rishabh Chamoli | 2022-10-31

Home purchases gather momentum as home loan interest rates are still within the reach of homebuyers, and as developers continue to dole out offers and adopt mitigation measures

While the residential sales remained stable despite the first three repo rate hikes, it was expected that the latest hike (fourth increase) in repo rate might shake the homebuyers sentiments. However, industry experts inform that residential sales continue to remain high.

The impact of RBI raising its key lending rate by 50 bps is not expected to heavily impact residential sales as the lending rate continues to be well below the highs of 12 to 14 per cent, which were seen in the first half of the last decade. Our research suggests that unless mortgage rates come close to that of the 2008 global financial crisis phase, the impact on sales will not be big, says Siddharth Goel, head of research and editorial of a full stack real estate advisory portal. Anuj Puri, chairman, Anarock Group mentions, The recent RBI hike was expected. But we have now entered the red zone any further hike may dishearten homebuyers. Our recent Consumer Sentiment Survey found that housing sales would be considerably hit if home loan interest rates breach the 9.5 per cent mark. However, as of now, these moderations could be a monetary blip and not cause a major dip in the housing sales.

Furthermore, given the fact that Grade A developers are reporting high sales despite a price rise and have also increased their new supply into the market, industry experts hope for a positive homebuying sentiment.

Latest Anarock data reveals that as many as 88,230 units were sold across the top seven cities in Q3 2022 a four per cent quarterly rise and a 41 per cent annual increase. Moreover, Many are also upgrading to luxury homes NRIs and HNIs are also investing in housing assets on the back of currency depreciation trade off, says Niranjan Hiranandani, national vice chairman, NAREDCO.

The festive season doing its magic
The festive season has also been a great booster for housing sales. This years festive season has been punctuated by several offers and discounts from developers that prompted homebuyers to seal their deals quickly. There is also a chance of property prices going up as the input costs as well as the cost of borrowing have also gone up for the developers. Homebuyers are thus eager to purchase at the lowest possible cost, adds Goel. Even after the festive period, albeit in moderation, the housing market is expected to do well. Unlike the last property cycle, this time around we are expecting the supply side to be cognizant and implement price increase with caution, states Vivek Rathi, director, research, Knight Frank India.

Mitigation measures
With rate hikes, affordability comes to the forefront. With the September rate hike, the house purchase affordability has shrunk by eight per cent implying that a homebuyer who was considering buying a house worth Rs one crore, would now be able to afford a home worth Rs 92 lakh only, explains Rathi.

Despite this, it has not yet translated into a reduction in the number of home purchases, as people have not stopped buying houses but have just made compromises in terms of ticket size, and location.

Any further hike might shake buyers sentiment
The Reserve Bank of India (RBI) increased the repo rate four times since May 2022 to achieve the twin targets of keeping high inflation in check and underwriting the depreciating rupee value. Property registration data is on an upward swing as of now with strong homebuying sentiment. The rising interest rates made homebuyers want to seal the deal quickly. The soaring global commodity inflation due to supply side shocks is causing a rise in input cost for construction. This had led to an increase in property prices by 10 to 12 per cent on an average across key markets. But any further interest rate will dent the sentiment, which may cause a slowdown in sales velocity. Hence, industry recommends fiscal intervention to ease inflationary pressure on the prospective homebuyers and keep the growth rate on the higher side.