The growing cost of living and the rising cost of house loans may considerably impair homebuyers' affordability in the coming days, according to a top official at Knight Frank today.

The country's real estate sector has recovered since the COVID-induced lockdowns in 2020, achieving robust growth in the previous six quarters, but it is now again facing major macroeconomic concerns. Despite returning to pre-COVID levels in 2022, the real estate market may be affected by skyrocketing inflations, frequent repo rate rises by the central bank, and general volatility. According to Knight Frank India, demand for residential residences and business space increased dramatically between January and June (H1). Gaining from the steady growth in the second half of 2021, sales in the residential market increased by 60% in H1, 2022. This followed a 51% increase in house sales in the calendar year 2021. However, growing living costs and rising house loan costs may drastically impair homebuyers' affordability in the coming days, according to a top official at Knight Frank today.
"Inflation and financial market volatility will continue to be major issues for the real estate sector and the economy as a whole in the coming months." Price increases reduced customers' real income and affordability. Following the Reserve Bank of India's two consecutive rises, a series of REPO rate hikes are now on the horizon. It would be critical to monitor how it affects the housing market," said Shishir Baijal, Chairman and Managing Director of Knight Frank India. According to him, while the Indian economy is solidifying and the home and office space markets are increasing for the first time in a decade, various upheavals may be in store for realtors. "However, the spike in domestic inflation caused by supply interruptions and the cost of crude (oil) is worrisome for India's near-term economic prospects."
"The jump in global commodity prices has significantly raised the cost of building in the previous six months, resulting in an increase in house costs," he noted. According to the Knight Frank Affordability Index, a 150-basis point (bps) rise in the house loan interest rate results in an 11.73% increase in the EMI (equated monthly installment) load for the borrower and an effective 3.38% drop in affordability. "Similarly, the 90-basis point rise in house loan rates implemented in May and June 2022 will result in an average 2% fall in the Affordability Index level across markets and a 6.97% increase in the EMI burden," it stated.
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