The Indian housing market paints an optimistic picture with a remarkable 7.21% price surge from April to June 2023. But can it withstand inflation and repo rate uncertainties?
After the pandemic, the real estate sector has seen an unimaginable surge. And the surge is justified because the rally was backed by positive home buyer sentiment and rising real estate prices.
The recent numbers show that the prices of housing realty are increasing. But, the concerns are still in place, like the inflation numbers are rising because of higher food prices and repo rate uncertainties.
Plus, the Reserve Bank of India on Thursday adjusted its inflation projection. For Q2FY24, retail inflation is expected to climb by 6.2% instead of the 5.2% they predicted earlier.
Zooming out a bit, the inflation projection for the entire fiscal year FY24 has been revised upwards to 5.4%, a bit more than the earlier projection of 5.1%.
And why does this inflation talk matter for real estate?
That is because an uptick in inflation may lead to a repo rate hike, leading to increased loan interest rates.
So, what is on the horizon for the real estate market?
Let’s find out.
What’s Happening?
According to Mint, the Housing Price Index (HPI), which looks at the property price increase or decrease, released a report. The report states that from April to June 2023, housing real estate prices increased by 7.21%. That is a bigger increase than the earlier 6.78% from January to March 2023 and much higher than the 2.83% from April to June 2022.
Places like Mumbai, Delhi NCR, and Bengaluru are seeing property prices go up anywhere from 6% to 15%!
Why Are Housing Real Estate Prices Rising?
1. Renewed Interest in Home Ownership
People are once again excited about owning homes. A report from Mint says that property sales increased by 9.91% in the top eight cities compared to the previous year. Mumbai had the most sales, going up by 16.14% compared to the same time last year.
2. Changes in Raw Material Costs
More people are looking to buy homes now, and this has caused the prices to go up. Also, the cost of making these homes has increased, like steel, cement, etc., and some are being passed on to buyers.
3. Limited Supply of Ready-to-Move-In Homes
Homes that are already built and ready to move into are in high demand, but not many are available. And because they are so wanted but not so common, their prices are also higher.
How Can Rising Interest Rates Dampen The Positive Mood?
Even though the prices are rising, demand should also rise alongside prices.
According to a recent report by Business Standard, the interest rates on home loans up to Rs 30 lakh have witnessed a significant increase. These rates have surged from 6.7% in mid-2021 to nearly 9.15% at present.
Consequently, the attraction of homes constructed under the affordable housing segment, targeting low to mid-income groups, has decreased.
This spike in interest rates and low demand can be attributed to the dual impact of surging inflation and a rise in the repo rate. If inflation doesn’t decline, the risk of additional rate hikes remains, and hence the demand would further see a dip.
However, there is a recent development that homebuyers can find comforting. The outcome of the MPC meeting on 10th August 2023 kept the repo rates unchanged for the third time following a series of six consecutive rate hikes.
As a result, homebuyers can finally breathe a sigh of relief for now.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
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