Impact of Rising Interest Rates on Real Estate Demand
Increasing inflation and interest rates are contributing to a slowdown in property demand, and a further 1% to 1.5% interest rate hike could significantly impact the real estate sector. Jones Lang LaSalle Meghraj Chairman and Country Head Anuj Puri stated, “The demand is already slackening. The real estate sector can absorb another 100 to 150 basis points rise in interest rates, but anything beyond that will hit the industry hard”.
Continued Slowdown Predicted
Mr. Puri further elaborated that the current decline in demand is expected to persist for approximately two years, as there are no indications of inflation subsiding and a strong likelihood of interest rates increasing. He noted a distinction in demand levels across different regions. While Mumbai and Delhi continue to experience robust demand, Mumbai and Delhi, other parts of the country are witnessing considerably fewer property transactions.
Consolidation in the Realty Sector
This weakening demand, combined with a liquidity crunch, could potentially trigger consolidation within the real estate sector, as smaller players might struggle to remain viable. Puri explained, “Smaller players will have to partner with bigger ones or offer stakes to financial partners to complete their projects”.
Office Space Demand Remains Strong
Despite the challenges in the residential market, Mr. Puri highlighted sustained demand for office spaces across India. He attributed this trend to the increasing preference of overseas companies for outsourcing to India, making even smaller cities appealing destinations. This demand for office space presents a contrasting picture to the residential sector's slowdown. This contrasting situation underscores the complex dynamics currently at play in the Indian real estate landscape.