What is Fueling the Real Estate Sector?
Published by Sharekhan Education | June 24, 2022
What is Fueling the Real Estate Sector?
Amit Pathak | Sharekhan Education
Banks and housing finance companies recently raised interest rates on home loans following the RBI’s hike in repo rates. Home mortgage rates have risen about 90 basis points from their low. Repo rates are expected to peak at 5.75%, with home loan rates peaking at around 8.5% in the coming time. Inflation is expected to slow down by the end of the year, allowing the central bank to revert to a lower interest rate regime. According to analysts’ estimates, higher mortgage rates will have a significantly smaller impact on the Indian real estate market.
Growing Housing Demand:
According to a CRISIL report, housing demand in India’s top six cities – Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Pune, Kolkata and Hyderabad – is expected to grow by 5-10% despite the increase in property prices and higher interest rates. Inventory levels in most of these cities are comfortable 2-4 years, compared to 3-5.5 years before the pandemic. Buyers now have more confidence in opting for properties under construction by developers with a track record of project delivery on time, instead of properties ready for relocation. Accelerating growth in the software industry, urbanization and favorable demographics are key growth drivers for the real estate sector.
Deepak Parekh of the HDFC group believes India should be able to double its home loans to around $600 billion (around Rs 46 lakh crore) within the next five years as India reaches its much-desired goal to be a $5 trillion economy. Housing demand will come from real home buyers, not speculators. Working from home has accelerated the need for larger homes.
Real Estate Sector:
The real estate sector reduced indebtedness, and unsold inventory levels also fell. Real estate operators with solid balance sheets and asset-light business models have increased their market share. They are better positioned in terms of liquidity, having raised large capital through stocks and monetizing land and businesses over the past two fiscals. Their improved financials will come in handy to finance growth in the future.
The low base of the Indian real estate market should mitigate the impact of a possible slowdown in real estate demand. Income levels are rising faster than property prices. Strong income growth will support the affordability of the homebuyer. The early appreciation in the real estate sector will increase the activity of HNI and NRI. It is time to look ahead and explore investment opportunities in lenders such as HDFC Bank and AU Small Finance Bank.
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