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The rate hike is a near-term dampener to the affordable housing demand

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Developers catering to the affordable market segment however remain confident and estimate an increase a small percentage hike in the single digits for property prices that will not alter their decision of home purchase. 

For the first time in almost two years, the RBI has hiked the repo rate by 40 basis points to tackle inflation that has flared up shortly in March. Despite the “accommodative” stance that RBI still maintains, the scope of impending rate hikes is inevitable with the retail inflation hovering significantly higher than the RBI’s outer tolerance level of 6 per cent in March. Further, the RBI has clearly indicated that April CPI (Consumer Price Index) is likely to remain elevated due to elevated global food prices. 

The RBI statement posts its off-policy move stated that the Monetary Policy Committee will “remain watchful” of the incoming data. It is therefore clear that while remaining hopeful of broad-based growth with the resumption of contact intensive services, post-COVID, the risks of transmission of high input costs remain “unprecedented”. 

The surprise inter-meeting hike and the implication of further such moves are likely to have a knee-jerk reaction and serve as a dampener to the sentiment of buyers in the affordable housing segment. The real estate sector is already grappling with the escalation of input cost prices in the range of 35-50 per cent over the past year. This may lead to a gradual increase in real estate prices although they may be capped at single digits in the near term. 

This, along with a rise in lending rates may bring in a temporary blip in the real-estate upcycle, led by the affordable housing segment. Developers catering to the affordable market segment however remain confident and estimate an increase a small percentage hike in the single digits for property prices that will not alter their decision of home purchase. 

The good news, however, is that housing demand for the economically weaker section (EWS) and lower-income group (LIG) households that fuel the demand for affordable housing will see little or no impact. The purchasing power of informal and self-employed does not erode due to inflation controls until they move to the semi-formal or formal mode of income.

In our experience of customers with an average income of ₹6 lakhs per annum, who comprise the above-defined sector, we have witnessed first-hand through our proprietary scoring model, that customers who finally fulfil their homeownership dreams after long years of savings are well-prepared for downturns such as these. Further, with most of the affordable housing loans disbursed at a fixed rate, these borrowers will not see any large impact of the rate hike. 

The pandemic has already witnessed a shift in employment patterns, with a bulk of the salaried employee workforce moving to the informal category. The forced adoption of digitisation has been a silver lining who have been empowered using affordable internet packs on basic smartphones. These have in turn become a viable mode of carrying out small businesses. 

The need for affordable housing is therefore here to stay, with the pandemic has highlighted the need for safe living abodes.  As the only digitally enabled housing finance company dedicated to the services of the informal and self-employed among EWS and LIG households, we are confident in servicing home borrowers by leveraging state-of-the-art technology. 

By using household credit assessment (in lieu of individual credit) we believe we are well-positioned to service the homeownership needs of the EWS and LIG segments. 

by, Malcolm Athaide, Agrim Housing Finance 

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