India real estate market faces pressure from rising interest rates

India’s real estate sector is navigating a complex landscape following the Reserve Bank of India’s decision to increase the repo rate to 5.5%. This shift toward ‘calibrated tightening’ aims to combat inflationary pressures driven by elevated crude prices and global financial volatility, but it has introduced significant challenges for the property market.

While the broader real estate sector has seen growth, with volume and value increases of over 10% in recent years, the affordable housing segment is struggling. Reports indicate a nearly 20% drop in both volumes and values for affordable housing, creating a substantial backlog as homebuyers face the dual burden of rising property prices and higher interest rates.

Industry experts note that the impact varies across asset classes. Residential real estate is highly sensitive to mortgage affordability, whereas commercial real estate remains tied to corporate expansion and occupier demand. Despite these headwinds, long-term prospects for the sector are supported by infrastructure development, expanding business activity, and end-user demand.