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On one hand we are witnessing record home sales month-0n-month across top cities, while on the other the news of rise in home loan interest rate and prices of homes. This situation is perplexing to most of the home buyers - should they go ahead and invest in their dream house? Or will the home prices come down in the near to medium term? 

Rising interest rates

It is widely believed that with no immediate signs of inflation coming down, the RBI will continue to maintain its hawkish stance and we will see further increase in the interest rates. Surprisingly the increased interest rates seem to not have affected the sale of residential properties in the country. 

The unabated demand for homes is evident in the recently released, ‘Real Insight Residential – April-June 2022’ report, a quarterly analysis of India’s top eight residential markets by REA-backed PropTiger.com, a leading real estate portal in the country. The report says that across the country, there was a 5% uptick in Q2 of calendar year 2022 with sales of 74,330 housing units in Q2 2022. A data from the inspector general of registration, Maharashtra, revealed that Mumbai recorded over 11,340 property registrations in the month of July, a 14% increase from the previous month. 

Rising commodity prices

As per the Maharashtra Chamber of Housing Industry (MCHI) and the Confederation of Real Estate Developers’ Associations of India (CREDAI) data, the input cost for construction of real estate projects has seen a steep increase of around 40% in the last 12-months led by hike in prices of cement which have gone up by 25%, and steel prices which have shot up by 60%. Other raw material costs used in construction like conduit pipes and the copper price have increased by 40%. 

So far the developers have managed by passing only a limited portion of the price hike in their raw materials and absorbing the rest by squeezing their profit margins. However, with the geo-political situation unlikely to improve soon, supply chain disruptions will continue the commodity prices remaining firm or rise further. So, there is limited scope for developers to absorb the increase in prices for their raw materials. Soon they will have no option but to pass on the increased costs either in part or in full to the home buyer. 

Consolidation with grade 1 developers 

These high commodity prices induced low margins are going to affect developers unfavorably, especially the operations of Grade 2 and 3 developers whose project completion is likely to get delayed. Grade 1 developers with experience of better planning and execution of construction projects are best suited to deal with these headwinds. Experts believe that wary home buyers will gravitate away from these Grade 2 and 3 developers and move to Grade 1 developers. We will see further consolidation in the industry where fringe players will increasingly look to partner and align themselves with Grade 1 developers. 

ICICI Securities, a leading brokerage in the country anticipates that top developers in the country will weather this storm successfully. The brokerage report goes on to name DLF, Oberoi Realty, Macrotech Developers, (Lodha) and Brigade Enterprises as companies which will successfully pursue calibrated growth while keeping their balance sheets healthy in the given circumstances. 

This is best time to buy a home

The RBI, maintaining its hawkish stance, has already increased the REPO rate thrice since the end of April and is expected to increase it further in the coming months. To mitigate the impact on consumers, leading developers like Lodha have launched initiatives offering special interest rates for limited time. For those looking to buy a home, this seems to be the most apt time to take the decision and safeguard against the increasing interest rates as well as the price rise. 

Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same.

 

 

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