Real estate agentsfear that rising commodity costs will hurt investor confidence and halt strong real estate growth.
- The raw materials needed for construction also increased with inflation, which further weighed on the purchasing power of customers.
- The industry expects concentrated efforts to curb soaring prices of raw materials such as cement, bricks, steel, etc., which would also relieve the sector.
Second round of hikes by the Indian central bank in
Over the past month, the Reserve Bank of India has raised the repo rate by 90 basis points, and most banks have already taken steps to reflect this in their repo-linked mortgage rates.
Analysts say homebuyers should brace for rising EMIs throughout this year, as if inflation weren’t enough of a problem as it is.
“We expect existing and new home borrowers to prepare for an increase in home loan rates throughout the year and plan their finances accordingly,” said Kalpesh Dave, head of planning and business strategy, Star Housing Finance.
However, it’s not just homebuyers who will be affected by rising borrowing costs. Even property developers will face the heat of the moment, analysts say. Moreover, for them, it could have a direct impact on residential home sales, as customers would stay away for a while due to rising costs.
In addition, it should not be forgotten that all the raw materials needed for construction have increased with inflation, which has further hurt the purchasing power of customers.
“A rise in inflation can soften the stance on an otherwise robust real estate sector. Already, commodity prices are rising and runaway inflation will push input costs further north, leading to cost overruns. for the developer fraternity,” said Suren Goyal, partner at real estate developer RPS Group.
“In such a case, they will have no choice but to pass on the price to the buyers,” he added.
This move would impact already strong demand and liquidity
After a lull due to Covid, demand for home buying had picked up due to the growing need for home ownership and the de-escalation of the covid crisis.
“The current rise in the repo rate could hurt otherwise optimistic bullish demand. Meanwhile, an increase in lending rates could hamper the growth of the affordable segment, which is very closely tied to the credit market,” Nakul said. Mathur, MD at Avanta India.
“From a real estate perspective, this key rate hike is a headwind, as mortgage rates will go up, which will put a damper on buyer sentiment. Any increase in the interest rate will further impact the costs of doing business and therefore this move will also hurt business sentiment as the economy is still recovering from the pandemic,” said Ramani Sastri, Chairman and Managing Director of Sterling Developers.
RBI and Ministry of Finance expected to step in at some point
However, in the long run, to maintain momentum, the industry expects RBI and the Ministry of Finance to take action to keep liquidity growing in the market.
“Banks and other financial institutions should play a pivotal role in ensuring a smooth flow of cash to the people,” said Subhash Goel, managing director of Goel Ganga Developments.
However, the RBI has given some breathing space to the space by announcing measures such as doubling the amount of loans co-operative banks can issue for housing to improve the flow of credit to the sector.
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