Festive Season to Accelerate Demand in Real Estate Market Despite Rate Hikes

Home sales this year have been strong, on account of low-interest rates and pent-up demand from the pandemic days. According to experts, the trend is expected to gain momentum during the upcoming festive season, when buyers tend to invest in properties, because it is considered to be an auspicious period for home buying.

While home loan rates today are at around 7.9 per cent, after staying at around 6.6 per cent for the last two years. However, the hike in home loan rates has not really dented demand, because interest rates are still lower than the pre-pandemic levels.

The Housing Price Tracker Report 2022, released by the Confederation of Real Estate Developers Association of India (CREDAI) and real estate consultancy firms, Colliers India, and Liases Foras, shows that demand for residential real estate has increased in eight cities, including Mumbai Metropolitan Region (MMR), Delhi-NCR, Chennai, Kolkata, Bengaluru, Hyderabad, Pune, and Ahmedabad.

Santosh Meena, Head of Research, Swastika Investmart Ltd., said: “The real estate cycle has turned favorable and the upcycle is expected to at least continue in the medium term. The sector has been in the doldrums in the last decade but covid has changed fortunes for the sector due to exponential growth in the IT sector, strong equity market performance, and historically low-interest rates. Additionally, the low inventory levels and affordability at an all-time high will ensure that the momentum sustains. We believe that strong developers or tier 1 developers are expected to gain market share, developers will hike the prices and pass on the rising input costs, affordable houses will gain significant traction and the upcoming festive season will be promising. However, the slowdown in global growth, recession in developed nations, curtailment of IT spending, and more than expected rate hikes might have a second-order effect on the Indian real estate sector and hamper the recovery & growth.”

Buyers know that home prices are on the rise and they want to close in on a home, before prices escalate. In the last few months, real estate developers have increased home prices because of the high cost of raw materials such as cement and steel. The desire to buy a home before prices escalate is expected to generate a lot of interest in residential real estate, during this year’s festive season. In anticipation of the high demand, real estate developers are launching many new projects with new features. Developers are also offering freebies and other incentives to attract buyers.

Should you Invest in the Real Estate Sector?

Developers are optimistic about sales because they believe that the sales momentum is based on strong fundamentals, such as demand from end-user buyers rather than speculators.

Sales in the first half of 2022 (January-June) were the highest in over a decade and second only to the first half of 2010. Pankaj Kumar, Deputy Vice President – Fundamental Research, Kotak Securities Ltd., said: “Residential sales for the real estate sector and our coverage universe continued to maintain strong momentum, allaying investor concerns on the potential impact of rising interest rates on real estate demand. Sales continued to outpace launches in Q1FY23 with outstanding inventory across the country reducing and is equivalent to less than 2 years of trailing annual sales. Our coverage companies saw sales growth of 1.85x YoY, ahead of 1.05x YoY sales growth for the industry in Q1FY23.”

Top Stock Picks

We believe that most of the players remain on track to achieve their targets for FY23 on the buoyant demand scenario. We remain constructive on the residential real estate segment, on account of the potential for further consolidation. DLF, Macrotech, and Prestige remain our preferred picks in the space.”

The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

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