After RBI declared over hold on Repo Rate, the real-estate sector felt a ravishing thrill. In the fiscal year 2023, the real estate market in India witnessed an extraordinary surge, with the top 12 listed companies achieving a remarkable 43% year-on-year growth in pre-sales. This impressive accomplishment can be attributed to an improved churn rate, which soared to an astounding 48% in FY23.
Adding to this incredible feat, the housing sector achieved unbelievable heights in the first quarter of 2023. Outshining all expectations, a tottering 1.14 lakh units were sold across the top 7 cities, as reported by ANAROCK Research.
This extraordinary impulse in housing sales comes despite the rising interest rates, with the central bank increasing the repo rate by 250 basis points since May 2022. Currently, interest rates offered by major banks range from 8.7% to 9.65%. However, with the recent pause in the rate hike cycle by the RBI, experts predict that home loan rates will remain in the single digits, providing a sigh of relief for both the real estate industry and home buyers alike.
Developers nationwide are now filled with optimism, as they believe that the respite in home loan interest rates will ignite a significant surge in housing sales across all segments. Niranjan Hiranandani, National Vice Chairman of NAREDCO, expressed his enthusiasm by stating, “With the festive season on the horizon, the halt in interest rate hikes will act as a growth catalyst, propelling sales velocity.”
The affordable and mid-income housing sectors will notably profit from this favourable turn of events in the real estate industry. Rising borrowing rates have challenged certain market segments, deterring some potential customers. Vimal Nadar, Head of Research at Colliers India, emphasised the beneficial effect, who said that “Fence sitters in the affordable and mid segments will have a more prominent display of their EMIs, motivating them to make their purchase.”
The government’s implementation of several favourable policies has also played a significant role in sustaining the momentum of housing sales. Home loan financiers are optimistic that a stable interest rate regime in the future will further stimulate demand. Despite a 150 basis point increase in the base lending rate (MCLR) over the past year, the demand for real estate loans in both the housing and commercial segments has remained robust.
However, caution still prevails among buyers, as they await the complete transmission of the repo rate hikes to lending rates. Nevertheless, the Reserve Bank of India’s decision to keep the interest rates steady at 6.5% aligns with expectations. It provides a reassuring trend for homebuyers, according to Viswanatha Gowd, MD & CEO of LIC Housing Finance.
Home loan applicants now have the option of floating-rate loans, which offer more flexibility, or fixed-rate loans, which may be available at a discount. Because rate reductions are anticipated in the upcoming quarters, Anshul Gupta, co-founder and chief investment officer of Wint Wealth, advises continuing with floating-rate loans.
Domestic brokerage Motilal Oswal Financial Services predicts a bright future for listed real estate developers. With the interest rate hike cycle reaching its peak, they believe the residential real estate market will remain stable and experience healthy demand for at least two to three years.
Real estate equities have grown significantly over the past year, with the Nifty Realty index beating the benchmark Nifty, which increased by more than 12% over the same time period, by jumping by 23%. With a gain of more than 50%, DLF was the top gainer in the real estate index. Prestige Estate Projects increased by 28%, The Phoenix Mills increased by more than 39%, and Oberoi Realty and Brigade Enterprises also experienced growth.
