The country's real estate sector has bounced back since the COVID-induced lockdowns in 2020 and has had healthy growth over the last six quarters, but it is facing serious macroeconomic threats again. The real estate market could soon be hit by the sky-rocketing inflations, repeated repo rate hikes by the central bank and overall volatilities, despite bouncing back to pre-COVID levels in 2022.
Knight Frank India stated that demand for residential homes and office spaces increased significantly during the January-June H 1 period. Sales in the residential market increased by 60 per cent in H1, 2022 after a steady rise during the second half of 2021. In the calendar year 2021, there was a 51 per cent jump in housing sales.
A top Knight Frank executive said that the rising cost of living and rising cost of home loans could reduce homebuyers affordability in the coming days.
In the next few months, inflation and volatility in the financial markets remain a concern for the real estate sector and the economy as a whole. There was an increase in the real income and affordability of consumers. A series of REPO hikes are imminent after the two consecutive hikes by the Reserve Bank of India. Shishir Baijal, Chairman and Managing Director of Knight Frank India, said it will be important to watch how it affects the housing market.
He said that while the Indian economy is moving towards a path of recovery, there are a number of disruptions that may be awaiting the realtors, with both the housing and office space market growing for the first time in a decade. The surge in domestic inflation due to supply disruptions and the cost of crude oil are a concern for India's near-term economic outlook. He said that the surge in global commodity prices has increased the cost of construction in the last six months, which has resulted in appreciation of housing prices.
An increase of 150 basis points bps in the home loan interest rate will result in an 11.73 per cent increase in the monthly instalment load for the homebuyer and an effective 3.38 per cent decrease in affordability, according to the Knight Frank Affordability IndexKnight Frank Affordability Index. The 90 bps increase in the home loan rate enacted in May and June 2022 will cause an average 2 per cent decrease in the Affordability Index level across markets and a 6.97 per cent increase in the EMI load, it said.