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

The increase in home loan interest rates by banks has had a minimal effect on real estate demand. New residential projects across geographies are witnessing a surge in bookings, with some getting sold out within a few days, say developers.

Real estate players and market watchers say consumers are not holding back purchases, using a few mitigating factors such as bringing down the loan-to-value ratio, extending the tenure of the loan, and banking on an expected increase in salaries this year.

Arvind Subramanian, Managing Director and CEO, Mahindra Lifespace Developers (MDL) said, “Consumers now take a few more quarters to save on their corpus. They increase their own contribution to manage EMIs. Within a certain range, there is a sentimental value to interest rates, but it is not so much of a worry. These rate hikes were expected, as we could not have had 6.6 per cent mortgage rates forever.”

MDL’s newly launched project in Bengaluru, featuring 1 BHK to 3.5 BHK apartments, was sold out within three days. The company’s project in Gurugram was fully sold in a single day.

In Mumbai, residential player Sunteck Realty project in Vasai, branded Sunteck Beach Residences, received an overwhelming response.  

Rohan Khatau, Director, CCI Projects (CCIPPL)-Rivali Park, said, “Despite the revision in interest rates, demand will remain strong because of pent-up demand, strong affordability levels, and positive sentiment.”

It is widely expected that the Reserve Bank of India (RBI) will continue to hike rates in an effort to tame inflation. The banks will follow suit and pass on these hikes to consumers. Market watchers added that home loan interest rates would peak at 8.5 per cent before climbing down again.

According to a report by Kotak Institutional Equities, housing EMIs may increase by 14–18 per cent from FY22 levels at the end of the current interest rate cycle. Home loan rates have increased by 90 basis points from recent lows.

“We see a moderate impact of higher mortgage rates on EMIs and the Indian housing market. We see two mitigating factors. One, salaried individuals will get an increment of 5-7 per cent, with domestic inflation averaging around 5-6 per cent, which will improve the EMI/income ratio. Two, new home-buyer can increase the tenure of the loan, to keep EMIs stable, “the report added.

Developers, however, expect that further rate hikes to the tune of 1-1.5 per cent would have some impact on demand a section of buyers who would tend to hold back their purchases, they clarified. “If the rates go up by another 1–1.5 per cent, then there will be an impact,” Subramanian added.

Buyers have seen a 10–15 per cent increase in real estate prices over the past year, thanks to the incessant increase in the cost of raw materials such as steel, cement, aluminium, and plastics. Such hikes, developers say, may continue due to the ongoing cost-inflationary trends.

Published on

June 20, 2022