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Home loan rate hikes have little impact on housing demand, developers say

Raising mortgage interest rates by banks had a minimal effect on housing demand. New residential projects in all geographies are seeing an increase in bookings, with some selling out within days, developers say.

Real estate players and market watchers say consumers are not holding back on their purchases, using a few mitigating factors such as lower loan-to-value ratio, extending loan term and putting in place an expected salary increase this year.

Arvind Subramanian, Managing Director and CEO of Mahindra Lifespace Developers (MDL) said, “Consumers are now taking a few more quarters to save on their corpus. They increase their own contribution to the management of IMEs. Within a certain range, there is sentimental value to interest rates, but that’s not so worrying. These rate hikes were expected because we couldn’t have had mortgage rates of 6.6% forever.

MDL’s recently launched project in Bengaluru, comprising apartments from 1 BHK to 3.5 BHK, sold out in three days. The company’s project in Gurugram was sold out in a single day.

In Mumbai, the Sunteck Realty residential project in Vasai, under the Sunteck Beach Residences brand, received an overwhelming response.

Rohan Khatau, Director of CCI Projects (CCIPPL)-Rivali Park, said: “Despite the interest rate review, demand will remain strong due to pent-up demand, high affordability levels and positive sentiment.”

The Reserve Bank of India (RBI) is widely expected to continue raising rates in a bid to keep inflation under control. Banks will follow suit and pass these increases on to consumers. Market watchers added that interest rates on home loans would peak at 8.5% before falling.

According to a report by Kotak Institutional Equities, housing EMIs could rise 14-18% from FY22 levels by the end of the current interest rate cycle. Home loan rates have risen 90 basis points from recent lows.

“We see a moderate impact of rising mortgage rates on EMIs and the Indian property market. We see two mitigating factors. 5-6%, which will improve the EMI to income ratio. Second, a new home buyer can increase the term of the loan, to keep EMIs stable,” the report adds.

The developers expect, however, that further rate hikes of around 1 to 1.5% will have an impact on demand from some of the buyers who would tend to hold back their purchases, they specified. “If rates go up another 1-1.5%, there will be an impact,” Subramanian added.

Buyers have seen a 10-15% increase in property prices over the past year, thanks to the relentless rise in the cost of raw materials such as steel, cement, aluminum and plastics. Such increases, according to the developers, could continue due to ongoing inflationary trends.

Published on

June 20, 2022

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