Market volatility will push investors to real estate, realtors say 

After the announcement of a rate hike by India's central bank led to home loans getting expensive and is expected to have an impact on the real estate sector, realtors say that the volatility in the stock market will push investors to real estate. Despite apprehensions, the real estate purchase surge may continue to help the realty business recover from pandemic pressures.

“Demand in the real estate sector, especially in the residential segment at present, is high all over India. There seems to be no let down in the surge in buying after two years of the pandemic, which is also fuelled by the fact that buyers today have lots of ready-to-move-in options — unsold inventory as you call them — to choose from. The commercial sector is also doing good and the demand for plots has only gone up,” Manoj Gaur, CMD of Gaurs group and vice president of Confederation of Real Estate Developers Association of India (Credai), told Business Today.

Following the Reserve Bank of India's 40 basis points rate hike, home loan rates were raised by India’s largest lender HDFC, increasing its home loan interest rates by 30 basis points. Following HDFC, ICICI Bank, Bank of Baroda, and RBL Bank have increased their interest rates too.

An increase in home loan interest would not entirely impact the sales figures as well, Gaur said. “The increase in home loan interest, to some extent, might have some impact but I don’t see it making a dent in the overall demand as the rate of interest in the past two years has been quite low. Besides, volatility in the stock market and the overall uncertainty will only bring more and more people towards real estate. As far as I can make out, compared to the Q1 of 2021, home sales in the first quarter of this financial year should be even more robust and the demand will only continue to go up in the near future,” Gaur added.

However, Anarock predicts that the home loan rate increase will make some dent in sales but not create any lasting impact.

“Higher home loan rates will affect sales to some extent – both in terms of fresh inventory sales and unsold stock. However, since demand is primarily driven by genuine end-user interest and not investors, we expect that it will not be a deep erosion and sales will regain traction after the initial shock wave abates,” Anuj Puri, chairman of Anarock group, told Business Today.

India at present has over six lakh apartments lying as unsold inventory in various real estate pockets. Anarock data reveals that the west-India market, including Mumbai and Pune, has close to three lakh unsold and ready-to-move flats which is also the highest concentration in India.

Delhi and NCR together have around 1.7 lakh unsold flats. Bangalore, Chennai, and Hyderabad have close to 1.4 lakh unsold flats. Kolkata has around 40,000 unsold flats.

Anshuman Magazine, chairman & CEO - India, South-East Asia, Middle East & Africa at CBRE, pointed to the positive outlook for real estate in 2022 despite the interest rate hikes.

“The residential sector is poised for a strong 2022 as both sales and new launches are set for a robust performance after exhibiting resilience last year. Given the current economic climate, the RBI’s decision to increase the repo rate by 40 bps is expected to help in balancing inflationary pressures and at the same time bolster economic resilience,” Magazine told Business Today.

CBRE also predicts an uptick in new launches during the year in Pune, Mumbai, Hyderabad, Delhi-NCR, and Bangalore, with middle and affordable categories likely to drive sales.

However, the reputation of the builder would increasingly become important as investors turn cautious, according to CBRE. “As end-use takes precedence over speculative investment and buyers become more informed, developer reputation, execution capabilities, and financial position would play a bigger role in home purchase decisions,” Magazine said. 

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