Of Home Loan Rates , Affordability and Residential Growth

Torbit - October 02, 2022 - - 0 |

RBI’s latest 50 bps hike in repo rate meant to maintain a balance between inflation and growth , coming in the midst of the festive season has put a question mark over the festive spirit and the continuity of the sales momentum .                          In its latest policy prescription, RBI has raised the key rate by 50 bps to a 3 year high of 5,9%., this is the fourth increase in the last five months , with a cumulative hike of 190 bps .  Currently home loan rates are at about 8% after staying at a decadal low of 6.6% for the last two years. These low home loan rates have proved to be a major driver for residential real estate that has shown remarkable growth post-pandemic. The residential sector saw an annual growth of 15% in Q3 2022 across top 8 cities. Housing sales have witnessed 41% rise in July-September quarter. The sales momentum has helped in substantially  bringing down the inventory overhang. The quarter to sell (QTS) level is down to 7.1 quarters from 10.3 quarters in Q3 2021.

The residential demand momentum can also be gauged from the robust new launches growing at a yearly rate of 15%..The doubling of  the sale share of luxury  homes (to 14%) to the overall sale of homes  and 8-18% rental increase in the last two years ,has proved to be a big booster for housing growth. Developers have been offering a good variety of products in luxury residences like low-rise independent floors – both standalone and in gated communities, condominiums, apartments and villas. Owing to this new launches in the luxury space increased by 230%.,

But the 50 bps increase in repo rate has raised a question over the affordability of homes due to rise in EMI. Especially as the banks like SBI and BOI have hiked their loan rates after RBI raised the benchmark interest rate which is linked to repo rate. Since affordable housing is price-sensitive many industry people fear that this will adversely impact affordable housing demand. But then many others believe that the festive quarter should see healthy demand. It is believed that many banks and financial institutions may not increase home loan rates  during the festive season or may partially pass on the repo rate hike to ensure that the pre-festive season sales momentum does not get hit.

One biggest factor that will ensure that home buying sentiment does not get unduly impacted by interest rate hike, is the fact that home ownership continues to hold importance for home seekers. To cash in on this dominant trend, developers are tailoring fresh supply as per home buyers’ choice and preference. There is now more supply in the mid segment of Rs 40-80 lakh (36%) and premium segment of  Rs 80 lakh- Rs 1.5 crore (28% while luxury and affordable housing have a share of 18% each. . This strategy should pay dividends as buyers can find homes of their liking in different product and price range.

The potential home buyers realize it well that  going forward the interest rates and property prices will go up further and therefore it is a wise decision to buy home now when developers are offering significant discounts and deals. Besides cash discounts, incentives like GST waiver, registration charges rebate, free parking, free club membership can considerably bring down the home acquisition cost. This can very well compensate for any extra outgo on EMI due to home loan rate hike. NRIs are particularly making most of these times as they are getting more bang for their buck due to devaluation of rupee.

Another positive factor is that investors have renewed their interest in the residential market that has remained an end-user market for a long. Their interest has gone up particularly after the price appreciation in the last few months. Moreover, they have a long-term view of the investments . The confidence of both home buyers and investors also stems from the strengthening  economy and  improvement in job market . And all this should bode well for the residential growth.

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