Why Are Home Buyers Coming Back To The Real Estate Market?

In 2015, so far, Indian home buyers have been buying homes more than they did in the past three years. It could be said that Indian home buyers are coming back to the real estate market. According to ZyFin Research's 'New Home Purchase Sentiment Index', consumer sentiment about buying a home in India is now the strongest in four years. The Index is based on a survey of 3,000 consumers in 11 Indian cities of different sizes.

If home buyers are buying more than they did in the recent past, what could be the reasons? The research points to three broad trends:

1. Improved employment outlook

Recruitment in Indian firms have been rising in the past few months, largely because of the growth in the manufacturing and engineering sectors. The employment scenario is improving after very long because the growth has been sluggish for a while due to global recession and domestic factors. However, recently, the economy started recovering, partly because of government policies favorable to growth.

According to the Manpower Employment Outlook Survey, carried out by the US-based human resource consultancy, for the third quarter of 2015, 41% of the Indian employers will hire, 41% of them will show no increase in employee strength and 2% of them will show no difference in the next three months (16% of them claimed ignorance about future prospects.). This, presumably, has made consumers optimistic about their own future earning potential and job security, compelling them to buy homes.

2. Cheaper Borrowing Cost

The borrowing cost of home loans has declined because the RBI cut the repo rate at which it lends to commercial banks, thrice, by 25 basis points, in 2015. Following the repo rate cuts, major Indian banks cut interest rates twice. When interest rates fall, consumers are keener on buying homes because financing is cheaper and buying more attractive.

A modest decline in interest rates would allow a home buyer to buy a more expensive home, with the mortgage payment stretched over many years. So, it is understandable why home buyers in India have been responding to interest rate cuts and investing more in property in India.

3. Affordable Homes

Recently, the Union Cabinet chaired by the Prime Minister Narendra Modi accepted the recommendations of an Inter-Ministerial Committee to raise the interest subvention to 6.50 per cent on home loans to people belonging to economic weaker section (EWS), slum dwellers and low income groups (LIGs). In the low cost housing segment, a decline in interest rates would have a significant impact on the willingness of people to buy homes.

According to some surveys, homes that cost Rs 25-40 lakh are selling more in the Delhi-NCR and many other parts of India, partly because of the policies of the central and state governments like additional FAR for developers engaged in affordable residential projects, waiver of license fee and infrastructure development charges, and public-private partnerships.

But, in the next few years, the incentives to buy affordable apartments in India are likely to be higher. HDFC bank, for instance, recently launched a $1 billion fund for affordable homes in India.