Why the Realty Market May Look Up

As the corona crisis has the markets practically in freefall, many might be expecting the same kind of repercussions in the real estate sector. However, this may not necessarily be true. There are various factors come into play, and we shall go over them in this article.

The first is possibly the most obvious and that is the repo rate. To put it in a nutshell, the repo rate is the rate at which the central bank of a country, in the case of India that would the Reserve Bank of India (RBI), lends money to the commercial banks. This naturally affects the rate at which these
commercial banks then lend money to consumers. Higher repo rates would mean higher interest rates on personal loans, education loans, and home loans, with lower repo rates having the opposite effect.

Historically, low repo rates have often led to booms in the real estate market. This has happened previously in 2003-4 as well as in 2010, where repo rates were as low as 4.5%. Presently, the RBI has announced a repo rate of 4.4%, which is extremely low, even considering past trends. It is an
appropriate response to the crisis and intended to encourage people to spend. Considering the past historical correlation of low repo rates and realty booms, this may well just turn out to be true once again. However, repo rates are not the only reason that the realty sector may escape the worst. This is something that many of us may have studied in school and might even still remember, especially those who opted for the commerce stream. Essentially, when demand is lower, the price goes down and vice versa. But at the same time, if supply is low, then the price goes up.
Now, in the current scenario, most people might be expecting to see the realty curve heading downwards due to the falling demand. However, we have to keep in mind that the current crisis affects not just the demand side, but the supply side as well. This means while the demand may fall,
factors affecting the other side of the equation could cause the supply to fall as well, meaning a rise in prices.