The Indian economy came to a complete standstill due to COVID-19 and the ensuing shutdown, with the real estate market suffering the most. The inventory list left unsold for the aforementioned period showed that India’s real estate market had suffered greatly. But in addition to the economy’s growth, India’s real estate market appears to be on the ascent since the latter half of last year.
It was predicted that higher rates would influence the recovery post-pandemic and slow down sales in the real estate sector, which is mostly reliant on bank funding for both builders and clients.
Expert Speak!
Despite the RBI’s latest decision to raise the repo rate, which will make home mortgages more expensive, real estate experts believe that the demand for homes won’t experience a significant impact, according to influencer Neha Garg.
Interest rates significantly impact residential property values because they influence how much a loan will cost. They compel financial institutions like banks and other lenders to raise the interest rate they charge borrowers for loans, including mortgages.
In plain English, a low-interest rate is helpful for home purchasers since it makes credit more affordable and lowers mortgage rates. According to Garg, increasing mortgage rates has an inverse effect, making properties less accessible.
Present Scenario
But the setting is different this time. This rate increase somewhat impacts residential real estate sales. The housing market goes through cycles. The influencer observed that demonetisation, GST, and Covid caused a protracted downturn, but the long-term upward cycle has finally begun.
The RBI has raised interest rates to pre-pandemic levels by 50 basis points. Home loan interest rates currently hover around 8% PA. However, despite high mortgage rates, there is an increasing demand for residential real estate.
In her analysis of the real estate market’s current status, Neha emphasised that, per ANAROCK research, 1.85 lakh properties were sold in the top 7 cities in the first half of 2022. It makes sense that India’s residential sector will perform very well in 2022, given the optimistic real estate market outlook. According to her, the growing preference for bigger homes and better facilities will increase home sales this year.
Key Factors Affecting the High-Demand
There are a few factors that are probably affecting why the demands are high. They have been mentioned below for your convenience.
- Young people are purchasing their first homes. Millennials are increasingly favouring residential real estate.
- Many individuals believe investing in real estate is safer than other investments.
- The value of the rupee has decreased, increasing the purchasing power of NRIs. They are also investing in real estate in their native India.
- When most employed people return to their offices, the demand for residential real estate will increase.
- Most rating agencies place India’s 8–9% growth area. More jobs will be created due to this sound economic expansion, which will further increase housing demand.
Because millennial homebuyers have been investing in real estate more frequently than ever before, we may thus conclude that 2022 will perhaps be the year of residential property.
Garg noted that the 1st quarter of 2022’s sales exceeded 99,550 units while deciphering some data. Delhi NCR saw a 123% increase in new home sales, the biggest growth rate ever. The market saw an increase in residential property capital values due to this strong demand.
see also – Commercial Real Estate Market India
Forecast for the Property Market
The growth is expected to continue in FY 2023. Because of ongoing infrastructure expenditures, improved connectivity, and more plentiful employment prospects, real estate prices in tier two and three markets would also rise quickly.
According to research conducted by the “India Brand Equity Foundation,” the real estate market in India is predicted to grow from US$ 200 billion in 2021 to US$ 1 trillion in 2030, accounting for 13% of GDP by 2025. This time, robust fundamental demand drives the market rather than current sentiments. If you intend to purchase a home, you should be aware that home loan rates have already been progressively increasing, which may hint that property values will also be rising.
Summing it Up
The pandemic’s highs and lows and the ongoing war’s peaks and troughs have been interspersed by a return of inflation. Real estate offers a great hedge against inflation, and most investors will concur that real estate is an asset class resistant to inflation’s negative effects. The real estate sector must answer the crucial question, “What’s the significance here for investment in Real Estate?” in light of the rising cost of living and the careful consideration people give to returns on their investments. This is the question we leave you with!
