Rising interest rates unlikely to dent growth in home sales: Developers

Rising interest rates are unlikely to compress growth in residential sales in the quarters ahead, observe property developers, fund managers, and real estate consultants. Many still believe rates are not as high as witnessed in the past decade. They say home prices are still affordable.

“Right now, there is no impact on demand. Our best-performing zone (Mumbai/Thane), in fact, witnessed not only rate increase but a stamp duty hike by 1 per cent. Notwithstanding interest rate and stamp duty headwinds, our projects in Mumbai and Thane received exceptional demand,” said Mohit Malhotra, managing director (MD) and chief executive officer (CEO), Godrej Properties.

Malhotra said the residential real estate market is doing remarkably well and absorbing the gradual price increase.

“Most customers are genuine end-users. The outlook looks positive. In the last upcycle during 2009-10 through 2012-13, home loan rates were in the 9-10 per cent band - still significantly above the current rates. While we remain optimistic, we will closely monitor any change in buyer behaviour and respond accordingly,” he added.

Godrej Properties posted the highest-ever first-quarter bookings of Rs 2,520 crore in the last quarter. Sanjay Dutt, MD and CEO, Tata Realty and Infrastructure and Tata Housing Development Company (Tata Housing), said there is continual increase in volume of sales and registrations.

“We witnessed that the previous hike in interest rates did not deter homebuyers,” he said, adding that at Tata Housing, they are providing homebuyers a cushion against the latest hike in interest rates by providing financial assistance through schemes offering 3.5 per cent interest rate for 12 months in nine of its residential projects across seven cities. This, said Dutt, would encourage customers still on the fence about buying a home.

“The rate hike has only buoyed homebuyers into making their purchase decision since rates will return to normal in a calibrated manner. For instance, in the last quarter alone we achieved a sale of over Rs 636 crore, notwithstanding the rate hike,” said Dutt.

Atul Goyal, chief financial officer at Bengaluru-based Brigade Enterprises, said while the increase in repo rate was on expected lines, it would have a marginal impact on the real estate sector.

“While this would mean an increase in interest rates for home loans, the demand that the sector is currently witnessing is expected to remain unchanged. The pandemic has fostered a paradigm shift in people wanting to own homes rather than rent them. There is also the availability of surplus income which prospective buyers prefer to invest in real estate,” he said.

Goyal added that with home loan interest rates being equal to or lower than pre-pandemic rates, they expect the current momentum in demand to sustain.

Those who manage property funds are also upbeat about demand in the segment.

“We believe that demand will remain intact despite interest rate hikes/increase in property prices due to rapid hiring and income growth. The information technology industry has seen the highest hiring ever in 2021-22. Salary growth also has been in double digits in line with these reported numbers. The increase in equated monthly instalments or increase in home prices is expected to be offset with increase in disposable income,” said Kaushik Desai, executive director, Walton Street BlackSoil Fund.

More so, the pandemic has sparked the need for home ownership. This is also one of the major growth drivers, evidenced in the first half of 2022 with absorption having reached its highest level since 2013, said Desai.

Consultants concur

Since the repo rate hike from the beginning of May this year, Knight Frank India has seen the transmission of rate rise to home loan interest rate as well. Besides, there has been a rise in housing prices by 4-7 per cent over last year.

In markets like Mumbai, homebuyers are also paying 1 per cent higher stamp duty, as opposed to 16 months ago. “While these factors have shrunk the affordability for homebuyers, the housing sale momentum has sustained so far because of income growth. Consumer sentiment on home ownership is supportive of demand. Mumbai saw record sales momentum in July, and we expect this to continue in the remainder of this year,” said Vivek Rathi, director-research, Knight Frank India.

Homebuyers are strategising their financial preparation for a home purchase in the wake of increased home loan interest rate. Going forward, some mitigating measures might be adopted by consumers in the form of reduction in the size of homes, shifting to relatively affordable locations, and movement in the category of developer and project grades to cope with the change in affordability, said Rathi.

“However, any further sharp rise in mortgage rates and higher inflation could lead to a ‘marginal push-out’ in demand in the near term until the market absorbs the rise and bounces back,” said Aparna Chaughule, associate director, India Ratings & Research.

“So far the market has been able to absorb the incremental rate, and the demand momentum has continued to be strong,” she added.