Inflation rates do affect the real estate market. The usual myth around the industry is that if the capital values are escalated, the housing demand increases, which is totally false. The most important factor that enhances housing demand is affordability. The alliance of housing affordability and housing demand has shown a very strong relation between the two in the top cities of India.
Whenever the level of affordability of houses has increased, the demand has also witnessed a substantial rise within a certain time period, if not then and there. But in the recent past, an exception was seen. Let’s have a look at the factors behind it –
Before the elections of 2014 were held, there were apprehensions regarding the growth of the realty market in India which gave way to a downfall of the property investment demand. But the situations has transformed now as India has become really likeable for investment purposes. Real estate in India is also playing a major role in capital flows entering India.
After the elections of 2014 took place, the government kept stressing on increasing the affordable homes for people which made people aware that prices will decrease. Developers are making efforts to increase the supply of affordable homes. On the other hand, the purchasing power in the hands of people has also increased because of the rise in incomes. And with government and developers taking various measures to win back the homebuyers confidence, the purchasing power has just enhanced.
The implementation of RERA has made homebuyers to trust the judicial system to support them in times of crisis. A decrease in inflation is also bound to pump confidence in the minds of homebuyers. This is because inflation has a very significant role to play when people decide to borrow funds to buy a house. As inflation also represents the country’s economy, it boosts consumers’ trust.
The demand for housing and the inflation rate are inversely proportional to each other. As the forecasters predict, the inflation is expected to remain in a comfortable zone at 4%-6%.
Therefore, all these factors including increasing affordable housing, rise in purchasing power as well as liberal inflation will contribute greatly, to help the housing sector to recover.