Home prices are on the rise in India despite the hike in interest rates by the Reserve Bank of India to bring down inflation. The All-India Home Price Index (HPI) of the Reserve Bank of India rose by 4.57 per cent to 303.9 as of March 2023 as against 290.6 in March 2022, indicating that price rise is continuing across the metros. The year-on-year movements in HPI varied widely across the cities, ranging from a growth of 16.3 per cent to 326.8 (281 last year) in Bengaluru to a contraction of 8.5 per cent in Jaipur. On a sequential (quarter-on-quarter) basis, all India HPI increased by 0.6 per cent in Q4 of 2022-23, showing sequential increase in seven of the cities. Home prices index of Mumbai increased by 4.26 per cent to 293.3 by March 2023 when compared to 281.3 a year ago. In Delhi, the rise was 6.65 per cent to 347.9 from 326.2 in March 2022. Kochi index rose by 8.45 per cent to 333.4. The RBI’s home index is based on transaction-level data received from the registration authorities in top ten major cities. HPI has gone up by nearly 10 per cent in the last three years amid the pandemic and high inflation and interest rates.an Despite the rise in home loan interest rates, there is a positive buyer sentiment, analysts said. “If we look at the market trend then we will see that homebuyers are in fact upgrading and going for bigger properties. Having said that, it can be deduced that if the RBI increases the repo rates further, which will result in an interest rate hike, the market dynamics will remain healthy. In anticipation of the possible hike some developers or builders may exercise caution, but again, the supply and demand equilibrium is strong,” said Navin Dhanuka, MD & CEO of Unitern Advisors Pvt Ltd. “With a lot of good projects near completion, there is no scarcity and the buyers are cashing on this growth momentum. I think that eventually the rates will spike considerably, but at the same time buyers will be in a better position to go for bigger and better assets,” Dhanuka said. The RBI has hiked policy Repo rate by 250 basis points to 6.50 per cent since February 2022 to rein in inflation, leading to a spike in home loan rates. Home loan outstanding of banks rose 14.3 per cent to Rs 19.49 lakh crore as on April 21, 2023 as against Rs 17.05 lakh crore a year ago, according to RBI data. This is a growing market and real estate demand momentum is here to continue for few years at least. “The developers are also restructuring themselves to attract fresh investments for upgraded projects with conforms to the global standards and certifications. So, even if RBI raises the rates to few points, the momentum which the realty market is witnessing will continue without a penny of doubt,” said Bhavesh Kothari, Founder & CEO, Property First. As per Knight Frank India, the daily average property registration in May 2023 was 308 units, making it the second-best month of May in the last ten years after May 2022. While the overall registrations dipped in May 2023, the strength in the daily sale rate of over 308 units and the rising revenues clearly indicates the robustness of Mumbai’s property market. “Contrary to the concerns surrounding interest rate hikes in recent years, on-ground data indicates a strong positive trend in the residential sector across the country. Launches of new projects, availability of funding, and actual sales has all demonstrated remarkable growth and stability,” said Sunil Pareek, Executive Director - Assetz Property Group. Interest rates have a tendency to follow a cyclical pattern, eventually stabilizing before entering a new cycle. Presently, it appears that India is nearing the peak of this cycle, paving the way for an extended period of stabilisation, Pareek said. Previous interest rate hikes did not deter developers, who not only continued with healthy project launches but also pursued bigger projects with increased sales prices. As loans are now linked to an external benchmark rate (Repo rate), any rate hike will lead to rise in banks’ lending rates. However, rising interest on home loans may have dented sales in the price sensitive affordable housing category to a certain extent, said Pritam Chivukula, Vice President, CREDAI-MCHI. “We are hopeful that the government will initiate some constructive policy measures that will invigorate the sector and sustain growth." Meanwhile, experts don’t expect the RBI to hike interest rates in the June policy review. “We maintain our view that the RBI will likely keep the policy repo rate unchanged in the June 8 policy meeting at 6.50%, as we forecast Q2CY23 headline inflation to be around 50bp below the RBI’s forecast from the April meeting,” said a Goldman Sachs report. “We expect the domestic banking system liquidity to remain flush with the RBI’s decision to withdraw Rs 2,000 notes, the recent variable rate repo auction, and our view of a flat balance of payments this year,” it said. Given this, and with considerable uncertainty around the commodity prices path and global growth, the RBI is likely to retain the liquidity tightening stance, as signalled by the comment that the MPC will “remain focused on withdrawal of accommodation”, Goldman Sachs said.
