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    HomeBusinessRealtors worry more about input price increase than interest rates

    Realtors worry more about input price increase than interest rates

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    One of the prime reasons for that is the multi-fold rise in salaries of IT professionals and a positive outlook on increments for the year in other sectors too, which is pegged at about 10% on an average.

    The real estate sector feels commodity price inflation could have a bigger impact on demand for houses than the repo rate increases undertaken by the Reserve Bank of India (RBI) so far, or the future hikes that may be announced.

    Developers are already passing on the input cost hikes to customers and prices of houses have increased in the range of about 3-5% since April after the spike in key raw material prices like cement, steel, among others.

    Though there has been some reduction in steel prices since the imposition of 15% tax on exports of steel last month, developers are in a wait and watch mode to see if there would be more inflation-linked hikes that would need to be passed on to the consumers.

    This, coupled with the interest rate hikes, have raised concerns around the positive run that real estate witnessed in terms of sales in the last two years of the pandemic, which was fuelled by sentiments around home ownership, sops in taxes announced by state governments and historically low interest rates.

    However, the rate hike impact is yet to be seen on sales numbers. While the April and May sales volume numbers are yet to be known, property registration numbers for the month of May in Mumbai city — India’s most expensive residential real estate market — have remained strong. Property registrations surged a sharp 78% year-on-year to 9,523 units registered in the month of May in Mumbai.

    One of the prime reasons for that is the multi-fold rise in salaries of IT professionals and a positive outlook on increments for the year in other sectors too, which is pegged at about 10% on an average.

    Abhishek Kapoor, CEO, Puravankara, told FE, “About 50% of our customers are IT professionals in large IT firms, and with strong employment generation and good hikes, the demand will continue to remain robust”. He said that even with another 50-75 basis points hike in interest rates, the demand will not be significantly impacted.

    Arvind Subramanian, managing director and CEO, Mahindra Lifespaces, said that customers are aware that interest rates will see two to three hikes over this year, and that is not such a concern with them. “Commodity inflation is something that we need to keep our eyes on. It can be a concern for demand, so my worries are on cost inflation and also if the regulatory costs go up,” he said. Mahindra has taken a 3-4% hike in the March quarter, and may take a call on future hikes depending on cost inflation.

    Puravankara has taken a hike of about 5-6% in the March quarter. “Further price increases will vary from project to project. However, there is stability in raw material prices right now after the government measures, and we do not see as much pressure there as was sometime ago,” Kapoor said.

    Rahul Talele, group CEO, Kolte-Patil Developers, also said that the current price trends will have minimal impact on demand in the future. “There is room for another 50-100 basis points hike in the interest rates. Also, if we feel that the velocity of our sales is reducing then we will take some calls in supporting customer EMIs.” The company has taken about 3% price increase since March, and plans to take another 4-5% hike in new projects to be launched.

    According to Knight Frank India, home loan rates are still about 150 basis points below those prevailing in 2019 and a reversion to those levels will result in an 11.73% increase in the EMI load for the homebuyer and an effective 3.38% decrease in affordability. However, the property consultant said in a note that even with interest rates approaching 2019 levels, the home buying sentiment should not get impacted significantly. “The performance of the broader economy will have a greater bearing on market momentum for the remainder of the year as it dictates homebuyer income levels and demand much more directly,” it said.

    Assuming complete transmission of repo rate increase of 90 basis points since May, the EMIs in Bengaluru for a Rs 75 lakh apartment has gone up by Rs 4,100 in the last two months, in National Capital Region by Rs 5,500 for a Rs 1 core house, and by about Rs 11,000 for a Rs 2 crore house in Mumbai, Knight Frank said.

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