Real estate sector facing difficult times again, warns Knight Frank India

The country’s real estate sector has bounced back since the COVID-induced lockdowns in 2020, posting healthy growth over the last six quarters, but it is facing serious macroeconomic threats again. In spite of bouncing back to the near pre-COVID levels in 2022, the real estate market could soon be hit by the sky-rocketing inflations, repeated repo rate hikes by the central bank and overall volatilities.

According to Knight Frank India, demand for residential homes and office spaces improved significantly during the January-June  (H1) period. Gaining further from the steady rise during the second half of 2021, sales in the residential market surged further by 60 per cent in H1, 2022. This came over a 51 per cent jump in housing sales in the calendar year 2021. 

However, the surging cost of living and rising cost of home loans may reduce homebuyers’ affordability significantly in coming days, a top executive from Knight Frank today said.

“In the next few months, inflation and volatility in the financial markets remains key concerns for the real estate sector and the economy as a whole. Increasing price diminished the real income and affordability of consumers. While after the two consecutive hikes by the Reserve Bank of India, a series of REPO rate hikes are now imminent. It will be crucial to watch how it impacts housing market”, said Shishir Baijal, Chairman and Managing Director, Knight Frank India.

According to him, while the Indian economy is consolidating towards a path of recovery, with both housing and office space market growing for the first time in a decade, several disruptions may be awaiting the realtors. “However, the surge in domestic inflation due to supply disruptions and the cost of crude (oil) are concerning in India’s near-term economic outlook.”

“The surge in global commodity prices have increased the cost of construction substantially in the last six month, resulting in appreciation of housing prices”, he added.

As per the Knight Frank Affordability Index, an increase of 150 basis points (bps) in the home loan interest rate will result in an 11.73 per cent increase in the EMI (equated monthly instalment) load for the homebuyer and an effective 3.38 per cent decrease in affordability. “Similarly, the 90 bps increase in the home loan rate effected in May and June 2022, will cause an average 2 per cent decrease in the Affordability Index level across markets and a 6.97 per cent increase in the EMI load”, it said.
 

Also Read: India's restaurant body calls service charge guidelines illegal

Also Read: DGCA issues show cause notice to SpiceJet on aircraft issues; incidents from Apr 1 to be reviewed