By Soniya Gaonkar on Jul 26, 2022 7:01:36 PM
When you think of inflation and how it affects real estate, what comes to mind
Price rise? Limited supply? Low sales? However, real estate does not immediately respond to inflationary tendencies like rice or gasoline do. Inflation does not behave uniformly. Prices for real estate do not just increase because everything else has increased in price. In fact, when inflation affects other costs, property prices typically hold steady and in some cases even decline.
And this has been held true in the Indian recessionary market as well. In the last couple of months when the RBI increased the REPO rate to curb inflation, home loans’ interest rates soared. However, property prices remained steady and buyers’ interest also did not hover much.
Interested to know more? Let’s deep dive.
Is Real Estate Going Through a Recovery Phase?
Home loan rates have increased as a result of the RBI's decision to raise the repo rate to 5.40% in an effort to stop the inflation from growing. Current RBI repo rate for home loans stands at 5.40%.
This increase is less likely to have a big effect on home purchasers' attitudes because the new home loan rates will be in a range close to 7 percent, which is still appealing to them given the rising prices due to growing input costs.
Also, compared to last year and the year before, more commercial and residential units have been sold. So, it’s clear that the housing market is recovering from the recent shocks and maintaining its level course in spite of these headwinds.
Are Costlier Home Loans Impacting Housing Demand?
Higher home loan interest rates will unavoidably have some effect on housing demand. Let's take a closer look at this.
The buyer segment who has been most impacted is logically those who purchase affordable property with a budget under Rs. 30 lakh. Due to the elevated cost of living, this buyer segment's affordability is already being challenged.
However, the government and banks offer a number of advantages to first-time purchasers of affordable homes. The Pradhan Mantri Awaas Yojna’s (PMAY interest-loan) subsidy is a crucial component. Since 2014, around 13.82 lakh residences in Maharashtra have been approved under the PMAY-Urban program. Over 43% of these have been finished, while 8.35 lakh more have been grounded for construction.
The market for luxury homes is now in an odd situation. Luxury house buyers are primarily motivated by discretionary factors rather than true needs. Contrary to popular belief, many buyers are concerned with costs and will not purchase properties at any price. So, to woo this segment, builders have offered reasonable discounts.
There is little doubt that the upcoming six to twelve months will provide its share of difficulties, despite all the defenses and counter defenses. The Indian housing industry, which is infamous for being resistant to change, is about to experience some interesting times.
The foundations that are powering the Indian housing story are still strong, though. Luxury house prices won't decrease because there is enough demand and little new supply in this market category. Luxury housing's value proposition is more of a goal for a better lifestyle than it is a function of cost arbitrage.
Related Post - RBI Hikes Repo Rate Which is Affecting Home Loans
The Silver Lining for New Home Buyers
Numerous experts think that these rate increases are beneficial for the economy as a whole and will ultimately benefit all homebuyers. Although the latest action will result in higher home loan rates, a weak economy is not good for the real estate sector as a whole. The economy must grow in a stable, inclusive, and consistent manner to support the sector at its best.
Given that interest rates are projected to increase, the increase in the policy rate is anticipated to have a greater negative psychological impact on home buyers. However, because home loans often have longer terms, it is doubtful that the rate increase will have a substantial effect on EMIs.
The last policy rate increase has only been partially conveyed by banks and housing financing providers. While the chance for homebuyers is decreasing, it is important to realize that affordability remains strong and the buying trend is anticipated to remain substantially intact. Additionally, interest rates are still predicted to continue near decadal lows.
The current situation has taught borrowers how to handle a long-term housing loan, such as a mortgage, where the interest rate is likely to fluctuate during this time. Buyers' expectations and attitudes toward homeownership have undergone a fundamental adjustment, and this will mostly withstand small changes in loan rates.
If these home loan interest rates still haunt you and stop you from buying your dream home, then move over to Kohinoor Group homes in Pune. Kohinoor Group is offering some of the most affordable homes at the very best of neighborhoods.
Visit www.kohinoorpune.com for more information.