The COVID-19 pandemic, forced many of us to prolong our home buying and real estate investment plan, given the times of confusion we faced. With the entire world fighting for survival against an "invisible army", which forced governments worldwide to bring their economy to a sudden halt, the thought of buying a home took a backseat.

But, as John Lennon once said

"Everything will be okay in the end. If it's not okay, it's not the end."

Everything in fact is not just okay for the housing market, it is in fact great, evident from the rise in the Reserve Bank of India (RBI) All India Home Price Index (HPI) and now with an unexpected pause in RBI's Repo Rate hike.

Homebuyers should cheer, as the halt in RBI's rate hike, this cycle, means no increase in interest of your home loan.

Surging inflation due to the pent-up demand from the pandemic forced the RBI to tackle it by hiking the repo rate (it is the interest rate at which the RBI lends money to banks and other financial institutions in case of shortage of their funds).

This deterred confidence of homebuyers, as the continuous rise in repo rates would imply they would have to pay more interest rates to banks.

However, all this is slowly changing, as while the world is heading towards recession, the Indian economy is expected to grow at 6.3%. And with increased urbanisation and demand in office space, real estate will see a growth boom.

Experts say the real estate sector saw a lull during 2015-2020 as the growth was very slow-paced. However in the past two years, pent-up demand, stable prices and benign interest rates along with government incentives have pushed up the housing market.

Increasing Home Loan Interest Rate

The 250 bps hike on interest rates by the Reserve Bank of India to 6.5% has led banks to revise their lending rates.

However, experts believe that this is not going to deter home buyers given the rising disposable income. Also, emotional quotient is another important factor in buying a home especially if it's a first home. The unprecedented nature of the pandemic has reinforced the belief in many to have a permanent roof over their head.

In order to gauge the value of a real estate investment, one should check historical price trends, rental yields and other factors such as location and amenities.

Increase in Real Estate Pricing

Post pandemic, prices of houses have increased significantly and experts believe it is only going to rise going ahead. As per a research report, the rise is due to strong housing demand and quality housing launches by developers. The report indicates that overall housing prices in India increased 6% YoY in Q3 of 2022.

In Bengaluru, housing prices rose by 6% YoY in Q3 2022 after remaining range-bound for the previous two years.

While prices in Delhi-NCR rose 14% YoY - the highest among the top eight cities. The most significant price increase was seen on Golf Course Road, which rose 21% YoY followed by Ghaziabad.

In Mumbai, Western Suburbs (Andheri to Dahisar) saw the highest increase in prices at 10% YoY followed by Panvel. The overall price of real estate in Pune increased 9% YoY in Q3 2022.

Rising House Rents

With the opening up of offices and the return of migrant workers in the cities, rents have gone up exorbitantly. As per a report, for October-December 2022, pan-India average rents increased 7% QoQ while rental demand decreased 18.1%.

Recent reports cite that rents have nearly doubled in certain cities like that of Bangalore. Experts attribute the rise to pent up demand, as during COVID, people had to cut down on their rent significantly as most people went back to their hometown.

Now, with the opening of offices, landlords are trying to cut back their losses by raising the rent.

The real estate market in India is complex. A wide range of factors contribute to price changes, including local, regional, national, and global factors. The real estate market is not only influenced by basic concepts like supply and demand, but also by things like mortgage rates, inflation, and even economic conditions in foreign countries.

It is also important to understand that rising interest rates may increase your home loan costs, but the fact that home loans are usually taken for a longer period of time and during this period interest rates will see periodic rise and fall, therefore banking only on interest rate rise to purchase a home is not the correct way to go about it.

Other factors such as location, amenities, transportation facility, price appreciation and rental yield trends of the house should also be taken into consideration while planning to buy a home.