How Do Home Loan Interest Rates Affect the Indian Real Estate Market?

Home Loan interest rates have a huge affect on home buying sentiment within the Indian housing market as this segment is mainly middle-class driven. And of course, interest rates, EMI costs - all have to be factored in by the individuals, families planning to buy a home (which is surely one of the biggest decisions in their lives).

Rising Interest in Mid-Range and Premium Homes

Despite the uptick in property prices and interest rates over the last year, the Indian housing market has witnessed a persistent demand for mid-range and premium homes. Insights from the Anarock Consumer Sentiment Survey (H1 2023) highlight a 10 percent increase in buyer interest for homes priced between Rs 45 lakh and Rs 1.5 crore. This indicates a significant shift in consumer preferences and market dynamics, underscoring the resilience of these segments.

The Role of Stable Interest Rates

Stable home loan interest rates are pivotal in attracting buyers to the mid-range and premium segments. As noted by a real estate expert from Pune, these segments rely heavily on home loans, contrasting with the luxury home market where buyers often use personal funds. The expert emphasized the importance of maintaining steady interest rates to sustain market growth, currently ranging from 8.7% to 9.65%.

The Impact of Rising Interest Rates

An increase in home loan interest rates could mirror the effects of escalating property prices, particularly in the mid-range and premium segments. According to the Pune expert, these segments enjoy popularity due to their relative affordability, but escalating rates might dampen buyer enthusiasm. This highlights the delicate balance between interest rates and market demand. 

Luxury Housing Market's Resilience

The luxury housing market exhibits a unique resilience to fluctuations in home loan interest rates. As observed by a real estate professional from Hyderabad, luxury and super luxury segments are less affected by borrowing rates due to the personal wealth of buyers in these categories. This segment’s demand dynamics are influenced more by factors like supply and demand, and broader market trends, rather than just interest rates.

The Affordable Housing Challenge

In contrast, the affordable housing segment is heavily reliant on home loans, making it more sensitive to changes in interest rates. The expert from Pune reiterated that while luxury segments may weather the storm of rate hikes, the demand for affordable homes could face challenges, underscoring the varying impacts of interest rates across different market segments.