Fall in India's headline retail inflation augurs well for real estate sector: Experts

The affordable housing sector is particularly dependent on a stable and benign interest rate environment.

Retail inflation declined to 6.83 percent in August compared to July. This gives some headroom to the central bank for not increasing the policy rate and maintaining a wait-and-watch approach, said real estate experts.

This augurs well for the real estate sector, particularly the affordable residential segment, since in the near term, the lending institutions will likely maintain the status quo for home loan interest rates.

The Consumer Price Index (CPI)-based inflation was at 7.44 percent in July and at 7 percent in August 2022, as per the data released by the National Statistical Office (NSO) on September 12.

"Considering that the RBI has projected Q2 FY24 CPI to be 6.2 percent, it indicates that the central bank has already factored in the inflationary risks in its policy decision so far. Thus, in its upcoming policy meeting in October 2023, the central bank will more likely continue with a rate pause, which is crucial as any additional rate hike could potentially dent the spending capacity of households. The affordable housing sector is particularly dependent on a stable and benign interest rate environment, and a rate pause is crucial for this segment. The tapering inflation level will provide comfort to the real estate industry as expectations around interest rates hinge on its trajectory," said Vivek Rathi, Director Research, Knight Frank India.

The growth in industrial production is uneven across categories. Consistent growth in capital goods and infrastructure/construction goods production hints at a healthy investment cycle in the economy, he said.

"India’s retail inflation rate of 6.83 percent in the month of August is a decline from the July rate. Even though it is still above 6 percent, the upper target limit of the RBI, it gives some headroom to the central bank for not increasing the policy rate and maintaining a wait-and-watch approach. This augurs well for the real estate sector, particularly the residential segment, since in the near term, the lending institutions will likely maintain the status quo for home loan interest rates. In fact, we believe that starting September, the festive season will also support residential sales. In all probability, retail inflation till March 2024 would be within 6 percent with intermittent upward trends," said Samantak Das, Chief Economist and Executive Director - Research & REIS at JLL India.