Rate hikes are unlikely to dampen the demand for real estate though buyers may opt for smaller homes now, according to Pavitra Shankar, Executive Director at Brigade Enterprises, who says a slowdown in the sector is not expected, at least in the near term.
Prashant Bindal, Chief Sales Officer, Macrotech Developers (popularly known as Lodha), agrees with Shankar and says rate hikes of up to 100-120 basis points will not impact the demand.
The Reserve Bank of India (RBI), aiming to move away from its earlier pandemic-induced 'accommodative' stance keeping in mind inflation, has hiked the repo rate by 50 basis points to 4.90 percent. This has led to fears that the move could dampen sentiment among home buyers.
An increase in repo rate means a hike in lending rates by commercial banks, particularly home loan interest rates, which in turn implies that borrowers' EMIs would go up.
However, real estate players expect the demand to remain intact in the near term.
“It (rate hike) is definitely a change in real estate, it will have an impact in the real estate sector. But we think right now, it really isn't going to dampen the demand that we're seeing on the ground," said Shankar in an interview with CNBC-TV18.
"I don't think it will really have a very big impact in the near term... Potentially, maybe as it (rate) becomes higher, people might look at the size of the unit they are buying and try to adjust what kind of inventory they're going for, but I don't see it impacting demand where it actually slows down at least in the near term,” she explained.
Lodha CSO Bindal said the rate hike would only impact if it goes beyond 125 basis points. In the long term, the rate hike will affect the affordable housing segment, according to him.
“The first cut analysis, when we did that extensive research, was that up to 100-125 basis points it will not make that impact. Post that, yes, it starts making an impact, especially in the affordable segment,” Bindal said.
Deepak Parekh, Chairman at Housing Development Finance Corporation, earlier said that he had never witnessed an uptick in demand for housing loans as huge as he had seen recently.
“Over the past two years, I have been on record several times, stating that I have never been as optimistic about the demand for home loans as I am currently. Despite the recent headwinds in the global macro landscape, I continue to maintain this stance,” he stated in HDFC’s annual report.
Bindal also reiterated that his company had seen robust demand for the last 18-20 months.
“The demand has been robust in the real estate sector across the markets, and the tier-I developers have been the biggest beneficiary of it. And what we see is that the demand continues,” he said.
As per an Edelweiss Research report on real estate, housing demand in the month of March improved by 6 percent on a month-on-month (MoM) basis and 17 percent year-on-year (YoY)
Here's a look at the increase in demand on an MoM and YoY basis in March across major cities in India:
Source: PropEquity, Edelweiss Research
Barring NCR, every major city in the country witnessed a spike in demand. Demand increased the most in Mumbai and Chennai (up 14-16 percent MoM each).
However, the same enthusiasm cannot be seen among Dalal Street investors. A weak market has taken its toll on most real estate stocks, which have struggled in the past one to three months. On Thursday, investors seemed to favour only Lodha (Macrotech Developers) and Brigade Enterprises.
First Published: Jun 9, 2022 3:34 PM IST
