Rate Hike Will Soon End All-Time Low Interest Regime: Anuj Puri
The sudden decision by the Reserve Bank of India to hike key policy rates will impact the growth of real estate industry. It may hit the housing demand, which was showing some signs of turnaround in certain cities. Anuj Puri, Chairman, ANAROCK Group, a leading property consultant explains the likely impact on the housing sector to BW Businessworld. Excerpts:
How do you see the sudden increase in interest rates by the Reserve Bank of India?
With inflation edging higher in the aftermath of the Russia-Ukraine war and the surging oil prices, the RBI took a tough unscheduled decision – to increase the repo rates by 40 basis points to 4.40 per cent. Overall, this was expected, as inflation has definitely moved into the threatening zone. Unfortunately, for homebuyers, this hike signals an imminent end to the all-time low interest regime, which has been one of the major drivers of home sales across the country since the pandemic began.
What will be the immediate fallout, if any, of the interest rate hike for existing and new homebuyers?
Much to the dismay of homebuyers, the hike will soon end the all-time best low interest regime -- one of the key factors driving home sales amid the pandemic. This coupled with the rising inflationary trends in basic input costs like cement, steel, etc. will ultimately increase the overall acquisition cost for homebuyers and thus impact residential sales. It may also dampen residential sales to some extent. A deep dive revealed that a price rise of more than 10 per cent will have a ‘high impact’ on residential sales and less than 10 per cent rise will have a ‘moderate-to-low impact’ on sales. The current sales velocity will thus be impacted if the increase is greater than 10 per cent.
How are the rising prices of essential raw materials and increase in construction cost going to impact the housing market over next two-three quarters?
Input costs of steel, cement etc. have gone up by almost 40-45 per cent in recent past, thereby prompting developers to increase prices. This possibility of price hike was also highlighted in ANAROCK’s recent consumer survey wherein at least 56 per cent of the respondents felt that property prices will increase in 2022.
Which cities are offering residential units below Rs 50 lakh/ Rs 75 lakh/ Rs 1 crore for the new homebuyers? Your advice to new homebuyers?
In Q1 2022, MMR and NCR dominated in the affordable segment with a new supply of approximately 6,420 units and 5,870 units, respectively. In the mid-segment priced between Rs 40 lakh and Rs 80 lakh, Pune dominated with 8,030 units added, followed by MMR with 7,640 units and Hyderabad with nearly 6,240 units. Hyderabad dominated in the premium segment priced between Rs 80 lakh and Rs 1.5 crore.
Buyers genuinely looking to purchase homes must know that it is the best time to buy. Many developers still continue to dole out offers but it comes with an expiry period. The recent rate hike by RBI will also increase overall property acquisition costs.
How are developers coping with rising construction costs and how much is being passed on to the committed buyers (waiting for delivery in 2022-23) and new buyers?
Amid the rising inflationary trends, many developers have already begun to increase property prices. This was inevitable and we will see between 5 per cent and 10 per cent increases in 2022. As per ANAROCK research, the average property price in the top seven cities has increased by 4 per cent in Q12022 as against Q12021. Hyderabad recorded the highest jump of 5 per cent in the year while other cities saw their average prices increase between 2 per cent and 4 per cent.
Is owning a home going to remain an expensive affair in 2022?
Undoubtedly, the overall acquisition cost for homebuyers will increase in the coming months amid rising input costs and the most recent rate hike by the RBI, inevitably making home loans dearer. But this hike was inevitable. Most buyers already anticipated an overall price rise in residential real estate in 2022 but how it affects demand will be a thing to watch in the coming months. However, with homeownership gaining top priority as a result of the pandemic, genuine buyers will come forward to take the leap.
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