Home prices in the country have gone up – albeit at a slower pace — if data collected by the Reserve Bank of India is any indication, signalling that higher interest rates have not made much impact in the sector till now.

The RBI’s All India Home Price Index (HPI) recorded a 2.79 per cent growth (year-on-year) to 302 in the third quarter (ended December) of 2022-23 as compared with 293.8 when it showed a 3.1 per cent growth a year ago despite the rise in interest rates. On a quarter-on-quarter (Q-o-Q) sequential basis, the index rose from 298, an increase of 1.34 per cent, from September 2022, according to the latest RBI data. The Y-o-Y movements in HPI varied widely across the cities, ranging from a growth of 7.1 per cent (Kochi) to a contraction of 9.0 per cent (Jaipur), the RBI said. While Lucknow, Kolkata, and Jaipur recorded sequential Q-o-Q contraction in the index, it rose for the remaining cities. In Mumbai, the HPI rose to 292.9 from 286 a year ago, Delhi from 327.7 to 336.8 and Bengaluru from 315.9 to 331.1. Kochi index shot up from 310.1 to 332.3.

The RBI data is based on transaction-level data received from the registration authorities in ten major cities — Ahmedabad, Bengaluru, Chennai, Delhi, Jaipur, Kanpur, Kochi, Kolkata, Lucknow and Mumbai.

“Though at first it seemed to be an issue of concern when the banks started increasing the home loan interest rates, the surging demand witnessed over the last 2-3 quarters has opened a completely new perspective. Almost in all major cities and their respective micro markets, sales across segments like premium, mid-segment and affordable, picked up,” said Sankey Prasad, Chairman & Managing Director, Colliers India.The RBI hiked the Repo rate by 250 basis points (bps) to 6.50 per cent since May 2022 to rein in inflation. Home loan rates of banks and finance companies have gone up as most of the loans are now linked to an external benchmark rate like the Repo rate.

“The sentiment remained positive and buoyant with a decadal high closing of 215,000 residential units sold across the nation. The same trend is largely expected to continue in 2023 owing to relatively lower levels of inventory overhang, a slew of new launches catering to the needs of the urban populace and a positive customer sentiment towards residential real estate as an asset class,” said Darshan Govindaraju, Director, Vaishnavi Group.

However, industry analysts are expecting the rates to come down once the retail inflation falls below the 5 per cent level in the coming quarters.
“We are of the opinion that the interest rate graph is at a peak now and it should start coming down and reduce by at least 2 per cent in coming months. Affordable and luxury segments are going to post continued growth with emerging segments such as senior living, student housing panning out well in the coming few years,” said Bhavesh Kothari, Founder & CEO, Property First.

Prasad said the strong position of our economy despite a global recessionary climate, a relatively stable job market and increasing purchase power parity are some of the factors driving the home buying decisions.

“The premium and luxury segment, in particular, has largely remained unaffected with the rising interest rates as customers are looking to invest in properties which provide them with a greater sense of living and offer them better returns as an investment,” Govindaraju said. Furthermore, as the high interest rates period has been lasting only for 3-4 quarters over the last decade as against 12-13 quarters more than 2 decades ago, the long-term growth story of the residential segment is promising, giving customers the confidence to invest in the sector early on, Kothari said.

Over the past few years, real estate prices have been on the upward trajectory reinforcing the idea that residential properties are a safe and smart investment option, Govindaraju said.

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