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The Reserve Bank of India continued to withdraw its accommodative stance. The difference this time accounting for 35 bps, leading the interest rate from 5.90 to 6.25. This has led to all real estate markets seeing a decline in affordability. It is expected that the median home loan rate increase will impact affordability of homebuyers and their purchase decisions.
On the other hand, the need for homeownership still being strong, fuelled by the pandemic experience, homebuyers will either brave the rise in interest rates or will consider a budget friendly housing units rather than deferring their purchase. Also, the anticipated price increases due to rising inputs costs of the developers and the inflation will keep the homebuyers from postponing their home buying. The real estate industry is unanimous in expressing that the present hike in repo rate is beyond the comfort level of the real estate sector. For the sector’s growth momentum to continue, there needs to be stable loan borrowing rates for investors’ benefit. The consistently increasing repo rates could dampen the outflow of money that is being invested in real estate sector.
The experts are of the view that the current total repo rate is only slightly higher than the pre-pandemic levels, and therefore, it won’t make a significant impact on luxury real estate. But the mid-housing markets can see fewer sales than before while seriously diminishing the affordability levels of affordable housing. No doubt, the housing prices will undergo a hike and there will be a tough situation for investors as well as end users. But, this may also act as a ‘call for action’ for potential homebuyers to hasten their decision of buying to avoid any more price hikes.
We expect the market to absorb the price hike and not dent the enthusiasm for buying a home. Indians prioritize owning a home and latent demand will continue albeit with some moderation.
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