It is almost a month now.
The last time Raj and Moonmonn visited her father’s home is more than a month.
Although summer is on us, along with the rare heatwave, Jamaishashthi is some time away.
However, Moonmoon’s mother wanted to see them and as the heatwave subsided a bit, Raj and Moonmoon were at Jodhpur Park on a Sunday morning, happy to meet her and expecting some delicious fare.
Raj and Moonmoon sat down with her father while her mother got busy in the kitchen.
Inflation is the conversation starter these days, and it is no exception here.
“Inflation is going to hurt everybody,” said Moonmoon’s father.
“And the worst part is that it is mostly imported and beyond the control of any country,” replied Raj.
“What will happen to gold prices?” asked Moonmoon.
Adda started with full enthusiasm.
Ditching tea or coffee, Moonmoon’s mother served them cold watermelon juice.
Inflation is Biting Everyone
While climate change is affecting everyone with the relentless heat beating down on us, prices of almost everything is also on fire.
It is happening all over the world.
Energy prices, as well the prices of metals and raw materials, are primarily to blame.
Moreover, supply chain disruption and financial stimulus packages by central banks are coming to haunt us.
Fuel prices, domestic LPG prices, as well as the prices of vegetables inspired many social media memes in India.
All these, in turn, are affecting property prices, and property prices are going to rise substantially, as we predicted.
Reversal of Benign Home Loan Rates
Till recently, inflation was considered transient and would dissipate soon. But now, central banks are not so sure and they began to take steps to contain the monster. The persistent Russia-Ukraine war is making the matter worse.
We had written how global uncertainties will be the catalyst to increase the interest rate in India.
Finally, RBI began the reversal of the benign interest rate regime and raised the Repo Rate by 0.4%. This has started hiking the home loan interest rate as well as fund costs for companies, property developers, and all other borrowers.
Obviously, the acquisition cost of a property is going to inch up from here.
In recent times, consumer demand was robustly returning to the economy, and even the desire for property ownership was unbelievably high.
Will it slowly change now?
Or will homebuyers slowly adjust to the new realities?
What can we expect going forward?
A Bit of Crystal Gazing
The real estate sector has been enjoying a demand deluge for quite some time now, especially aided by various central and state government incentives and low home loan interest rates.
There were robust sales across segments, and the affordable segment was enjoying as many inquiries as the premium and luxury segments.
In all markets across India, inventory came down substantially. In Kolkata, new projects were launched and homebuyers took an interest to book them.
Booking numbers are better than in the pre-Covid period even now.
However, now the situation has changed somewhat with property prices as well as interest rates rising. There are a few questions in the minds of homebuyers.
Will home prices go beyond the affordable range?
The answer to the question is that it is unlikely.
The recent crisis has driven home one point that it is vital to live in one’s own home rather than a rented flat. Moreover, a hybrid working model with work from home is here to stay and it needs the comfort, privacy, and convenience of own home.
As home prices rise, rent will also follow suit. There is no arbitrage benefit of staying in a rented flat while paying EMI will confer ownership of a property but paying rent will not.
Consumers generally absorb slow price rises in their stride if there is no major financial shock. A slight increase in home loan EMI will not dissuade them from buying to live in their own homes.
Will Affordable Homes be in Favour?
Affordable housing is preferred by a large section of homebuyers for a few reasons. Buying into an affordable gated complex keeps the EMI low, especially for homebuyers who do not have much requirement for an extensive set of high-end amenities. For them, budget concerns supersede the need for a premium lifestyle.
However, in cities like Kolkata, apartments are relatively affordable compared to other metro cities in India. There is very little scope and incentive for the developers to launch flats priced even lower.
If you are thinking that developers will launch very low-priced apartment projects in Kolkata, it is extremely unlikely.
While affordability is one side of the equation, the other side is income growth. Without considering the rise in income of homebuyers, we cannot completely understand affordability.
According to industry observers, the affordability of homes has actually improved as income has risen faster than property price-rise. In a large number of industries such as IT, e-commerce, new-age businesses, financial services, professional services, and healthcare, income has certainly risen. This certainly augments the affordability of homebuyers toward costlier properties.
Our market studies have clearly shown that there is a shift towards larger homes, and 3 or 4 BHK homes are now increasingly chosen rather than 2 BHK homes. 3 BHK homes are the largest demand segment now, commanding 54% of the overall demand in Kolkata.
For a majority of homebuyers, buying a 3 BHK home is sensible considering future space requirements even if it costs more today.
What should You Do if You’re Planning to Buy a Flat
It is better to stick with your plans and not be swayed by the economic cycles. You’re not buying a home based on financial factors only, there are also other important considerations.
Your home loan eligibility will reduce as you grow older, and your child will need his/her own room as he/she grows up.
You may not get another affordable flat in a similar location.
You can never predict the economic realities of the future and it is better not to be unduly anxious about it.
Go ahead and search for your dream home.
Talk to your trusted property consultant.
Confirm that site visit.
Apply for that home loan.
Buy that apartment.
You are buying it for your family.
