With the inflationary pressures evident across the world, many countries have seen back-to-back interest rates hikes in the recent past. India is closely knit to the global economy and had to take remedial actions to control inflation, which is driven by domestic as well as global factors.
In the wake of a surge in crude oil prices and the geo-political tensions, inflation has reared its ugly head in India. The Reserve Bank of India (RBI) was prevailed upon to announce a series of rate hikes to counter it, and the process is far from over. The repo rate stands at 5.4% as of now and the RBI may hike rates by 50 bps in the upcoming policy meet.
Declining interest rates were a key reason for the massive housing demand surge in the past two years. Also, the pandemic reinstated the importance of owning physical assets like real estate. This time around, the demand revival even included the previously rent-favouring millennials – who continue to be on the market for homes.
The RBI had cut interest rates from 5.15% when the pandemic hit to as low as 4%. Since May this year, we have witnessed interest rates back on an upward climb.
Will another rate hike impact housing demand? This is less than likely. To begin with, it had always been clear that the low interest rate regime was a short, sweet, and ultimately unsustainable interlude. It was required during and immediately after the worst Covid-19 waves, which had seriously intimidated Indian consumers at all levels.
Thankfully, their departure is gradual, leaving space for a softer landing to a consumer base which is historically accustomed to high interest rates.
A degree of discomfort notwithstanding, a 50-bps hike should not seriously hamper homebuyers’ sentiments. Moreover, the festive season is around the corner. This is a period when developers usually roll out various freebies and offers, and we may even see fixed interest rate guarantee plans announced this year.
While considering the festive offers, homebuyers will zero in on those which directly help contain their overall transaction costs.