While bankers and brokerages are talking about borrowers becoming cautious about new home loans due to higher rates, residential sales are not showing any signs of slowdown. Housing sales in India’s top seven cities are estimated to rise 14% during January-March 2023 to over 113,000 units on strong demand despite increase in prices by 6-9%, according to Anarock Property Consultants.
While there is a lag between home sales and home loans by three to four months, there are a couple of reasons for an uptick in home sales, say developers, consultants and analysts who track home sales. Niranjan Hiranandani, managing director at Hiranandani Group, attributes this to faster growth in mid and higher income properties. “Those in the lower income bracket are not able to afford current EMIs but it has not affected those with higher incomes. What high income earners are thinking is that today rates are higher, tomorrow they will come down and let’s buy properties,” Hiranandani said.
He said in his lifetime, it is the first time that the affordable housing segment is growing at a slower pace than that of the higher income segment. “Otherwise, the former always grew faster than other segments,” he said. Houses up to 45 lakh are considered as affordable, those between 46 lakh and 1 crore as mid-segment, from above1 crore to 3 crore as premium housing and above 3 crore are considered luxury housing, in cities.
Pankaj Kapoor, chief executive at real estate research & analytics firm Liases Foras, agrees with Hiranandani. “There is a 10% decrease in affordable housing sales but it has been made up by increase in luxury sales,” Kapoor said, adding that new launches have been unprecedented and developers are also offering attractive pricing and freebies to attract buyers.
Kapoor said that non-resident Indians and investors have come back to the residential market due to rupee depreciation and increase in prices has helped loss in demand. He added that banks are also offering attractive home loan rates.
However, Anuj Puri, chairman of Anarock Property Consultants, said that it is just that the growth rate in home loan demand is seen to be moderating. “That is to say that if the growth rate earlier was at 12%, it may now be at 7% or 8%. As for why it is not reflecting in home sales, it is because the impact of the slowing down of home loan growth rate reflects only in the subsequent quarters and not in the same one.”
On NRI and investor participation, Puri said: “We cannot just say that the depreciating rupee is the reason why sales are happening due to the NRIs in recent times. The fact is that India is a growing economy, while the western countries are witnessing a slowdown. And with the massive layoffs globally, many Indians are also impacted by it and are coming back to India at a very short notice. These NRIs are thus looking to own homes of their own, given that the market here is conducive for homebuying.”
Property developers such as M Murali, chairman & managing director at Shriram Properties, believe that despite the possibility of cyclical fluctuations in interest rates, customers view this as a temporary phenomenon and understand that in the long term, rates will be much lower than the current rates.
“One of the primary reasons for the high demand for homes is the consolidation in the market, with supply being less than demand, driving more people to make homebuying decisions. Therefore, the demand for homes is not solely based on mortgage rates. Another crucial factor is the perception that the government has positively managed to maintain an optimistic outlook,” Murali said.
However, many believe that home sales could be hit in the coming months due to higher EMI outgo and rise in prices. Kapoor of Liases Foras said that end-user demand could be hit in the coming months due to a 20-25% increase in total outgo, contributed by higher EMIs and higher prices.
Anarock’s Puri said, “Given that India can’t be decoupled from the global recession and its invariable impact on the housing uptake here, the decision by the RBI to keep the repo rates unchanged comes as a welcome respite to homebuyers. However, any further rate hike (if any) could play a dampener for the housing demand in the short-term. Moreover, the strength of the Indian economy will also play an important factor going forward.”
Mahaveer Shankarlal, director, India Ratings & Research, said that the home sales data is likely to be strong in 4Q due to both base effect and also tax savings (changes capping capital gains to Rs 10 crore taking effect in FY24). “The slow sales will reflect in subsequent months and quarters, already seen in the affordable sales segment. Luxury segment sales demand growth was due to tax saving as mentioned above and is likely to taper down in FY24,” he said.
Private equity investors such as Amit Bhagat, chief executive at ASK Property Fund, believe that one has to see the sustenance and growth of sales after increase in launches and pause in increase in home loan rates to arrive at a conclusion, but end user demand continues to be robust so far.
