After the impact of the second wave of COVID-19, the recovery in the real estate segment has been encouraging
aActivity in the real estate segment is an indicator of economic growth. After being battered by the second wave of COVID-19, which brought the segment to a standstill, the recovery has been encouraging. Project launches, inquiries and sales have brought back smiles on the faces of builders.
RBI has kept the rates intact, refraining from making any changes. The repo rate remains comfortable at 4%. It is the rate at which banks borrow from RBI for short term and is also the benchmark for deposit and subsequent lending rates.
Home loan rates for leading lenders are ruling at 7.00% from a decade low of 6.60%. On a loan of ₹25 lakh for a tenure of 20 years at 6.70% interest rate, the EMI will be ₹19,000.
It is expected that interest rates may be hiked in the near future to control rising inflation. Due to the sharp rise in the prices of petrol-diesel, cooking gas and groceries, the central bank may be forced to increase the repo rate which will increase the interest rates.
This can be a cause for concern for the real estate segment and home loan borrowers.
Economic reform is not yet fully covered. Although the GDP in the first quarter (June 2021) was reported to be 20.10%, one should not be confused with this number. Earlier the decline in GDP was very high and even if the current growth numbers seem high, the economy is still far from real recovery.
Builders are facing high input cost which may force them to increase the prices as such cost is always passed on to the buyers but most of the builders are worried that such move will impact buying and selling interest. may fall. For buyers, an increase in the purchase cost and a rise in interest rates can be a double whammy.
The government is making every effort to provide the necessary stimulus, and the measures to increase liquidity have been quite encouraging. The affordable housing segment is expected to grow with more bottom pyramid buyers looking for homes.
important factor
Three aspects will be important: COVID-19 should not be a third wave and even if it does, it should not be as severe as a second wave; Repo rates should not increase; There should be a sharp recovery in the economy which boosts the confidence of buyers and home loan borrowers. A good economy gives people the confidence to go for their dream homes and take loans with self-assurance by being able to service the EMIs.
Borrowers should stick to the floating rate option despite the threat of rising interest rates. EMIs may increase if rates rise, but a growing economy cannot sustain high interest rates; Rates will eventually come down.
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