Buying a home is on the ground, but for how long?

What is astonishing is that this shocking data comes against the backdrop of the total cost of buying a home going north. Since May, the Reserve Bank of India (RBI) has hiked the repo rate by 90 basis points (bps), making home loans costlier.

From 1st April, Maharashtra State Government introduced Metro Cess. As a result, the stamp duty on property purchased in Mumbai increased from 5% to 6%. Besides this, leading listed developers are also on a price hike spree to offset the negative impact of commodity inflation on their margins. For example, Godrej Properties Ltd increased prices across its product portfolio by around 5% in Q4FY22 and 3-4% in Q1FY23, the management said in its latest earnings call.

Still, consumer sentiment is upbeat. “Home loan rates are increasing and currently it is around 7.5% but still low as compared to 2019 (pre-pandemic level), stamp duty has also gone up in Mumbai market and builders have put in around 4 per cent in projects. Price hiked by -6%. At the same time, income in sectors like IT has grown at a comparatively faster pace in the last one year. Other segments such as pharma and BFSI have also seen decent wage recovery post-Covid. So, overall, the dent on affordability, as things stand today, is not too much,” said Vivek Rathi, Director – Research, Knight Frank India. All these factors put together make the difference between Mumbai as well as Assisting in the demand of housing units in Pune and Bangalore.

Also, to mitigate the impact of higher mortgage rates on sales, some companies are offering interesting schemes. For example, in June Macrotech Developers Ltd (Lodha) launched an ‘interest bandh’ initiative. Under this scheme, the increase in equated monthly installments due to interest rates above 6.99% will be borne by Lodha till June 2024. The maximum increase that can be absorbed by the company is capped at 150 bps.

but that’s not all. Supply side factors are also driving the potential demand for residential units in Mumbai.

“The growing feeling of owning a home during the peak of the pandemic had led to bumper sales. As a result, the ready-to-move inventory for many Mumbai-focused realty developers was exhausted. Since interest rates are moving upwards, clients are in a state of panic, fearing to see a higher-than-expected jump in asset prices,” said an analyst at a domestic brokerage house, requesting anonymity. Running pre-sales for newly started projects in the city.

Meanwhile, Nifty Realty Index is down around 9% so far in CY22. As shown with the chart, the stocks of companies having projects in Mumbai have also been under pressure. Note that these companies have strong launch pipelines for FY23. Of course, timely execution remains a key trigger for their stocks. Now, even though property registration data, which is one of the indicators of business activity in the real estate sector, has remained stagnant, anticipation of a hike in interest rates remains a general sentiment. Analysts say the market sentiment remains muted towards high-beta stocks like real estate.

The repo rate is expected to increase further by 35-50 bps in the policy meeting of RBI on August 5. “We expect RBI to hike rates by another 50 bps this week. If interest rates continue to rise in tandem with rising property rates, there may be some reduction in the momentum of this sale,” cautioned Rathi.

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