Are you an aspiring homebuyer waiting for interest rates to come down? If yes, this article is for you and for all those individuals unsure if the time is ripe to invest in property.
Property prices have skyrocketed in certain tier-two cities. If you want to know how much property prices have surged in Indian cities, refer to our article – Higher Mortgage Rates and Rising Prices. If you are waiting for property rates to drop or assuming there will be any relaxation in home loan rates, you might be adopting the wrong approach. With the RBI recently keeping repo rates unchanged at 6.50% for the seventh consecutive time, market experts believe any rate cut by the central bank can only be expected by the end of this year. This suggests banks are unlikely to lower their interest rates at least until the year’s end.
Secondly, current market trends suggest that property prices are less likely to cool off and instead, analysts expect an uptick in prices. According to analysts polled by Reuters in March this year, average home prices in India are set to rise 7% this year and next, driven by purchases of luxury properties. Home prices grew 4.3% in 2023, the quickest since 2018, according to Reuters calculations based on the RBI’s House Price Index.
India’s financial capital, Mumbai, recorded the third-highest year-on-year (YoY) growth in prime residential prices, jumping to the third position in Q1 2024 on the back of strong demand for higher-value properties. New Delhi saw a 10.5% YoY growth in residential prices in Q1 2024. Meanwhile, Bengaluru slipped from the 16th to the 17th position, despite recording a 4.8% YoY rise in prices. The Indian real estate sector is forecasted to be worth $1 trillion by 2030. The sector is expected to continue on a positive trajectory in 2024.
Factors Driving Property Prices in India
NRI Interest
Non-Resident Indians (NRIs) are actively looking to buy properties in India. From constituting 10% of total investments in the Indian real estate market in the fiscal year 2019-2020, the proportion of their share in the domestic real estate market has now increased to 15%, and the figure is expected to rise to 20% by the end of 2025.
Also Read: NRI Blue Collar Workers Seeking Home Loans
Market Dynamics (Upscale Lifestyle Trends)
With the positive growth in the Indian economy, there is also an improvement in the standard of living of Indian citizens who are upgrading their lifestyle choices and looking for luxurious accommodation. There is a spike in demand for homes adorned with lifestyle facilities like fitness centers, swimming pools, and lush green landscapes. Not only High-Net-Worth Individuals (HNIs) and Ultra High Net Worth Individuals (UHNIs), but upper-middle-class individuals are also expanding their budgets to buy larger living spaces.
Investment Shifts
Traditionally, investors have favoured commercial properties due to their higher yields and lower maintenance requirements. However, a significant increase in residential properties’ rental income over the past two years, along with their affordability, has shifted the odds in their favour. People generally expect residential properties to perform better in terms of capital appreciation than their commercial counterparts due to the rapid price increases.
Also Read: Latest Home Loan Interest Rates 2024
Changing Tenant Behaviour
The drastic jump in rental costs has resulted in a shift in tenant behavior. For many people, homeownership has emerged as a more financially prudent option than paying expensive rent since it allows them to convert rent into monthly EMIs. The number of people purchasing a home for the first time increased from 62% in 2022 to 68% in 2023, according to the NoBroker Annual Real Estate Report 2023. A major factor contributing to this increase was the rise in rentals.
Government Initiatives and Policy Rates
India’s flagship affordable housing scheme, Pradhan Mantri Awas Yojana (PMAY), aims to provide affordable housing for all. With over 50% of India’s household savings invested in real estate, these initiatives are also contributing significantly to the sector’s growth. These housing schemes are expected to boost the demand for housing further.
Should You Buy a House Now?
If your credit score is robust, you have a stable job, and you have adequate savings to cover the down payment and closing costs, buying now seems to be a smart move. In the last two years, property prices across the top eight cities in India have increased sharply by almost 20%, according to a report by Credai, Colliers, and Liases Foras. In the January-March quarter of this year, house prices in Bengaluru, Delhi/NCR, and Pune jumped by 19%, 16%, and 13% YoY respectively.
There are anticipations that prices will continue to rise in the coming years. According to analysts at Motilal Oswal, “We believe that we are in the middle of a 7-8 year long real estate growth cycle. Accordingly, we believe that growth momentum in both demand and pricing should continue.”
According to an Economic Times report citing a JLL report, “The strong residential price growth over the past 12 months amid muted income growth and sticky interest rates did weaken affordability levels but didn’t act as a momentum inhibitor. In 2024, we are likely to see a renaissance with affordability levels expected to improve as macroeconomic fundamentals support a repo rate reversal and, thereby an interest rate reduction which could provide another fillip to the residential sales market.” Badal Yagnik, CEO of Colliers India, said, “With prospects of a reduction in benchmark lending rates this fiscal, affordability can improve in the near term, especially for the EMI-dependent home buyers.”
Given this context, it appears unwise to wait for interest rates to fall in India. You can opt for floating rates in case there is uncertainty and can switch lenders for better rates in the future.
Suggested Read:
- Home Loan Tax Benefits
- Best Bank For Home Loan in India
- 10 Things you should Consider Before Applying For Home Loan?
Negotiating with Builders
Negotiating a deal with builders in the current market situation requires a different approach. Home seekers should expect resistance while expressing interest and discussing final pricing. Builders usually adopt various tactics, such as claiming inventory is selling out fast or only a few units remain on certain floors, to pressurize buyers to close a deal quickly at favorable prices. It is advisable not to fall for such gimmicks and to make decisions wisely.
