in for an unpleasant surprise. House prices in the South Asian nation have already started to move up, while interest rates are also rising sharply. Many experts are of the view that the situation is getting worse for new homebuyers, although some say all is not lost, despite the grim outlook.
Home prices are increasing as a result of rising cost of raw material, including cement and steel. While this is expected to push a significant number of homebuyers out of the market, higher interest rates are only making matters worse for them. “Rising interest rate along with elevated property construction cost and product price pressures could adversely impact on the real estate buyer’s sentiment,” Shishir Baijal, Chairman and Managing Director at Knight Frank India, said.
His views were echoed by the Chairman and Managing Director at Sterling Developers, Ramani Sastri, who said: “This hike in the policy rate comes as a hurdle as home loan rates will increase, putting a dent on the homebuyer’s sentiments. Any increase in the interest rate will further impact the costs of doing business and hence the move will hurt business sentiment too as the economy is still recovering from the pandemic.”
According to experts, the affordable housing segment is expected to be the worst affected by rising interest rates, which will push up mortgage rates which have already started to creep up following the monetary policy announcement last month. “Interest rates will remain lower than during the global financial crisis of 2008, when they went as high as 12% and above. Nevertheless, the current hike will reflect in residential sales volumes in the months to come, more so in the affordable and mid-segments,” Anuj Puri, Chairman at ANAROCK Property Consultants, said.
However, some experts are of the view that these rate hikes would have a positive impact on the economy that would ultimately help all homebuyers. “Although the recent step will increase the home loan rates, an unstable economy is not conducive to the overall health of the real estate industry. For the industry to operate optimally, it is important that the economy continues to grow in a stable, inclusive, and steady fashion,” Atul Goel, Managing Director at Goel Ganga Group, said. He added that while policy rate hikes are expected to act “more as a sentiment disruptor” for the home buyers, their impact on home loan EMIs is unlikely to be as significant as these loans are for a longer tenure.
