ICRA Signifies the Demand in Housing Will Continue as Affordability Increases

ICRA Signifies the Demand in Housing to Continue as Affordability Increases

Historically, the affordability of housing in India has remained low, with unit prices still high because of increased property costs, huge transaction costs and taxes.

ICRA (Investment Information and Credit Rating Agency) ratings mentioned that in recent years, the government has made progress on moderating the costs for real estate transactions and financing, including higher income tax incentives for buyers in the form of loans on housing, credit-linked subsidy schemes under the PMAY scheme for acquisitions in the affordable and mid segments, etc.

Expected Growth in Housing Demand 

In recent quarters reduced home loan rates, attractive payment schemes/discounts and reduction of stamp duties in certain key states on the basis of Covid-19, has significantly brought down housing costs and boosted housing demand.

Housing sales volumes, which had declined by 62 percent year-on-year in Q1 FY2021, bounced back considerably in subsequent quarters, with a quarter-on-quarter increase of 60 percent in Q2 FY2021 and further quarter-on-quarter growth of 53 percent in Q3 FY2021, limiting the year-on-year dip to 7 percent in Q3 FY2021.

Repo-Linked Lending Rate (RLLR) has hit a record low and rates have fallen below 7% for home loans. Banks also offered discounts on processing fees, etc. Due to the economic uncertainties, repo rates would likely continue to be low over the close to medium term, thus enabling home buyers to continue to profit from them till FY2022.

After covid-19 started, a strong decrease in the rate of home loans, along with other governmental and central incentives, further strengthened affordability, while in turn encouraging housing demand to recover from post-covid rating lows.

The recent rise in demand will be possible through a determined effort to fix affordability by lowering the housing cost for home buyer's and thus allow housing demand to rebound to pre-Covid levels within 2022.

By: Shailaja K