Indian Real Estate Market : A potential real estate boom in India has been hampered by the COVID-19 pandemic’s continuing impacts, rising interest rates, and rising raw material prices. These factors combined to create a perfect storm for the real estate sector. As a result of the pandemic, heightened inflation, and rising interest rates, the All India House Price Index (HPI) has increased by over 10% over the last three years.

Consumer sentiment is a major component that affects sales; favourable attitudes frequently result in greater purchases, while negative sentiments discourage potential customers.

The benchmark interest rate has been held at 6.5 percent by the RBI, raising concerns for the rate-sensitive real estate sector. The constant 250 basis point increases since May 2022 have hurt demand in key cities even as lending rates have remained stable.  In view of this circumstance, the Reserve Bank of India (RBI) must move swiftly and lower interest rates in order to revive the real estate market and promote economic growth.

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Real estate effects of RBI interest rate increases

RBI has been warned by CREDAI that another rate increase will increase borrowing costs for developers, driving up project costs and housing costs. This change, together with rising raw material costs. Might strain real estate projects’ already thin margins, making certain constructions unprofitable for developers given that prices already rose by 5–6 percent last year.

Increased interest rates have affected developers’ cost of capital as well as the ability of prospective homeowners to get loans. Reductions in repo rates would boost house sales. Boost buyer confidence, and provide customers access to greater cash, which would encourage them to purchase homes.

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Indian Real Estate Market : Need to lower rates

Robust GDP growth is anticipated to be facilitate by a decrease in the repo rate. With the repo rate fluctuating between 4 and 4.4 percent between March 2021 and March 2022. India’s GDP increase by 8.95 percent at that time. The RBI must immediately lower interest rates in order to regain the momentum that has been lost in the real estate industry. Rate reductions can stimulate the market’s animal spirit by restoring trust in both consumers and developers.

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Indian Real Estate Market : Festival Season is a good time.

As developers struggle to get finance despite growing capital expenses. The rise in interest rates has resulted in an increase in projects that have reached a standstill. Homebuyers are now waiting for the completion of their ideal residences as a result. Lowering interest rates by the RBI can provide delayed projects a lifeline by making financing more readily available for developers to pick up where they left off and realise the ambitions of their customers.

Additionally, as the holiday season draws near. It offers a fantastic chance to reenergize the real estate market by using a mix of alluring offers and low loan rates. The RBI can assist builders in capitalising on this feeling and providing the much-needed encouragement as the festival season is usually seen as fortunate for purchasing real estate in India.

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