RBI’s pause on rate hikes is laudable.

Interest rate hikes benefit depositors but lead to higher EMI payouts.

The consecutive rate hike of 250 bps has undoubtedly hurt consumer sentiment in the affordable housing segment. The refinancing of home loans by either increasing the monthly EMI amount or adjusting against increased tenure left the homebuyers in a lurch. Real estate is an interest rate-sensitive sector and balancing the home loan rates will be pivotal in fuelling the demand rally.

Industry has reported a 6 per cent drop in the overhang of unsold inventory to a 20-month low in Q1 2023 in the top seven cities. Despite the rise in housing prices and rising home loan interest rates, the property launch pipeline has been robust since FY 22. The Q1 of FY 23 picked up on a similar traction rate while locking up record-high sales deals in the mid and luxury home segment.

Home buying is fast becoming a priority for the millennials as their transition towards financial prudence, backed by secure jobs and income stability. In the post-Covid era, this segment was looking for enhanced financial and social stability which is prompting them to look for affordable housing options, with modern amenities.

The back-to-office phenomenon under a hybrid way of living has spurred home rentals across locations. Rapid urbanisation, increase in redevelopment projects, and job opportunities have been the driving force for the migration to metros. This has also led to a pick-up in rental housing.

Real estate is also grappling with the market consolidation clout, leaving fly-by-night developers in a tight spot. The deleveraging of the debt portfolio and rejigging construction financing avenues has led to supply-side pitfalls.

The enhanced cost of credit borrowing coupled with raw material inflation, shortage of skilled labours, and supply chain disruption has shot up the project cost, ultimately leading to a hike in property prices by 8-10 per cent on average. The inflated land prices, cost of approvals, and delays in land acquisition have also pushed project costs on a higher scale.

Supply absorption

The housing stock built up post the outbreak on Covid pandemic is proportionate to rising demand for ownership and rental housing across key property markets. The home buying demand momentum is sustained despite economic headwinds and inching up supply on the back of redevelopment, market consolidation, and a robust pipeline of housing launches.

The sales velocity has remained upbeat as the overhang of unsold housing inventory drops down to the comfortable 18 months from the previous 42-months high.

With the PMO’s quest to achieve ‘Housing for All’ and the rise in GDP, housing production will continue to rise northwards. This will ensure the absorption of the new supply of homes out in the marketplace.

Moreover, rapid urbanisation and last-mile connectivity under the mega infrastructure framework will push rental property demand.

Given the interest rate hikes’ impact on growth, the RBI must tread cautiously. India Inc anticipates that the stability in geopolitics will ease the inflationary turmoil and allow central banks to reorient the focus more on the growth story.

Sood is the Secretary General, Assocham and Hiranandani is Past President

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