Current home loan interest rates are still low and are not sustainable: Shishir Baijal of Knight Frank India

June 7, 2022

Home buying is witnessing a strong rebound post pandemic and despite the rise in construction costs, demand has remained steady, says Shishir Baijal, Chairman and Managing Director at Knight Frank India.

Lower interest rate cycleson home loans are also expected to end soon too but it may not impact demand as people are factoring in the same already, he says.

In an interview to BusinessLine, he talks about the realty sales, improving work space demand as office opens up and new asset classes that are driving interest in recent times. Excerpts:

Do you anticipate any change in repo or interest rates?

The buzz in the market is RBI will go in for another 50 basis point hike in repo rate this time. But, I cannot give a timeline for that. The current home loan interest rates are still low and are definitely not long term sustainable. So rate hikes are imminent; either now or later. Our expectation is another 50 bps hike is in the offing.

Will another rate hike impact home sales demand?

Homes sales saw a strong rebound post the second wave and continued through despite the Omicron. Except some delay in decision making, Omicron did not stall sales. The previous rate hikes by the RBI have also come in; but their impact on demand is yet to play out visibly.

In fact, home demand could see a 3-5 per cent increase in April – June, q-o-q.

Even if interest rates are to increase in the short term, there is unlikely to be significant impact on demand. People have have been factoring in price hikes of building materials in home costs; so factoring in interest rate impact is not improbable either.

For instance, home sales in Maharashtra were lower in May versus April and March. May is considered to be a historically lower sales month and it was also the time when the State government imposed a cess of 1 per cent on home sales effective April 1. Now, if I make a May this year versus May last year comparison, sales are up. So an exact apple-to-apples comparison is not possible always.

Are builders willing to pass on the benefits post the Centre anti-inflationary measures?

Home prices are up at least 1–7 per cent across cities in January– March, y-o-y and q-o-q. In some micro-markets increases have been higher – for instance in NCR or in Pune. So if the government intervention bears fruit and inflationary pressures dip, especially construction costs fall, then developers will have to pass on benefits. Also, there is a strong demand for ready-to-move-in homes and hence, the impact of price rise is fairly cushioned.

How have demand for office spaces panned out?

Absorption is moving up steadily and this segment will be driving real estate sector soon. In 2019 (CY), absorption was 60 million sq ft; and in 2021 (CY) it was 40 million. Hiring has been up across sectors and offices are re-opening; the requirement is for bigger work spaces that are spread out. So we should hit pre-pandemic level numbers in the next couple of years, if not earlier.

With this market hitting pre-pandemic numbers or bettering them, interest in REITs will grow. People will be drawn in by the stable income that REITs generate and the asset quality they manage.

And will demand for alternative asset classes stay?

If by that you mean, co-working spaces, then it’s another high growth sector. Flex spaces have gained popularity among occupiers and now with hybrid work schedules, many are expanding into new Tier-II markets, a logical one.

Warehousing will grow with e-commerce gaining popularity and data centres are being aggressively explored by several big names.

Published on

June 06, 2022

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