What Can You Do About Rising EMIs and Increasing Home Prices in 2022?

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  • 4th Aug 2022
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What Can You Do About Rising EMIs and Increasing Home Prices in 2022?

Almost everyone has the desire to buy and have his or her own home. The real estate market is therefore always watched by many anxiously. 

Recent increases in real estate prices and mortgage interest rates have alarmed many prospective homeowners. Wondering whether your home buying plans are feasible or must you delay it for another year?

When we hear about price increases, we instantly get concerned. However, if we examine the data and prepare carefully, we may discover a solution. Current conditions in the real estate industry are pretty comparable.

Keeping in mind global dynamics and domestic inflation, the RBI has raised the repo rate twice this year. This has affected the ratio of EMIs to income.
resulting in a two percent case rate.

In the previous few of months, house affordability has deteriorated iri owing to a 90 bps increase in home loan rates. The affordability of key markets has fallen by 200-300 basis points on average.

However, this has not discouraged purchasers from pursuing their goal of homeownership, since increasing repo rates remain below pre-crisis levels.
The June 2022 sales numbers demonstrate that purchasers continue to have trust in the real estate market notwithstanding repo rate changes.

According to the most recent market assessment report, despite several obstacles, the number of residential units sold in the first quarter of 2022 topped 78,627, a nine-year high, as a result of rising demand among purchasers. Even though the interest rate increases are substantial, they are not a surprise and have been included into the market attitude, which remains positive.

This is due to the fact that, despite the price increase, prices are still below their pre-crisis levels, offering homebuyers an opportunity even today. Homebuyers have just one option to counteract this increase: extending the loan term. However, this also implies that they will pay more interest over time.

Cost of homes:
According to a research, house prices in metropolitan areas have climbed by six to nine percent. The majority of the price increase may be ascribed to the increase in raw material costs. Due to the Ukraine-Russia situation and the rise in gasoline prices, material costs have skyrocketed.

Nonetheless, the government intervened to alleviate this pressure so that bomebuyers are not subject to the price rage. Prices of steel per tonne have decreased to Rs 59,800 from Rs 76,000 in April 2022 as a result of government measures; the industry anticipates further growth in residential sales in the following months as developers lessen the upward pressure on building costs."

Once inflation is tamed and global unrest is stabilised, the true cost of purchasing a property will once again be negligible.

Here, more liquidity and buying power might be advantageous. According to the Michael Page Wage Report 2022, the average salary increase in 2022 is projected to be around nine percent, compared to seven percent in the year before the influenza pandemic in 2019. As inflation is around seven percent, a wage increase of nine to twelve percent would enhance a homebuyer's financial condition, which may encourage them to purchase their dream house.

The Michael Page research provides us cause for optimism; the rise in demand stems from the fact that the rate of pay growth in the nation is projected to climb this year, which will further encourage the working people to invest in real estate. Even on a worldwide scale, India's residential sector survived the epidemic better than the world's biggest economy, the United States. This also makes the Indian real estate market more investment-friendly than its worldwide counterparts. As a consequence of continued geopolitical tensions, the prospect of price increases does not seem to be a big issue for the industry.

Should a homebuyer wait till prices decline?
In the next months, another increase in the repo rate is anticipated, although it is still anticipated to remain below 2019 levels. As a result, industry analysts are optimistic that homebuyers will act soon, before prices exceed pre-crisis levels.

How does the RBI evaluate inflation?
In the first two quarters of the current fiscal year, inflation is estimated to be much higher than the RBI's comfort threshold of 4% (+/- 2%). The RBI forecasts inflation to be 7.5% in the june quarter and 7.4% in the september quarter.

The most prudent course of action is to continue with your home-buying plans and attempt to negotiate the best terms with real estate developers in particular.

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