The Effect Of Macroeconomic Factors On Real Estate Sector

Despite the fact that the financial markets all over the globe are experiencing a slump, Indian economy is growing at a rapid pace. The growth of the economy  can be measured by using the macroeconomic factors. One positive sign for the Indian economy is the presence of strong macroeconomic fundamentals. This fact is supported by the Governor of Reserve Bank of India (RBI), Raghuram Rajan. India’s gross domestic product (GDP) growth had improved as observed in June. There are different ways to calculate growth. If the method of measuring the growth rate is changed, it has an effect on the GDP. The real estate sector is affected deeply by the macroeconomic policies of the Government. The performance of these macroeconomic variables is crucial to influence the real estate assets.

There are a few reasons to support the fact that India is performing well at the aggregate level.

1. The Indian economy is growing at a fast pace. In fact, it is considered to be the fastest-growing major economy in the world. The GDP growth rate in the last quarter of the previous financial year was 7.5 per cent. Rajan explains that India has the potential to grow at a much faster pace. However, the recent performance that India has shown in terms of GDP is decent. India has shown a tremendous improvement in the growth rate of GDP. Earlier, it was growing at a gradual pace.
2. Rajan, being an eminent economist, understands the significance of inflation targeting. A few years ago, India was the only large nation with an unusually high rate of inflation. It was facing double- digit inflation, two years ago, when many countries witnessed a fall in prices of commodities However, this situation has changed. The inflation rate of Indian economy has reduced. In fact, it is performing better than countries like Russia, Brazil and Indonesia.
3. The home loan interest rates have fallen. According to Rajan, the RBI is happy to deliver lower interest rates as inflation has fallen. Moreover, the RBI has started slashing interest rates. Also, the central bank cut the repurchase rate thrice over three monetary policy reviews in the year 2015, by 75 basis points in total.
4. The prices of the commodity are low now and this expected to continue for a while. The  economy of India is becoming more prosperous, therefore, greater domestic and foreign investments are likely to happen in the next few years.

     However, there are a few reasons that are a cause of concern for the Indian economy, as stated by Rajan.

1. India can do much better in terms of its GDP growth rate. Unfortunately, it is still below its potential.
2. Moreover, the inflationary expectations are still high. This is another major cause of concern for the national economy.
3. Also, the non-performing assets in the financial system are still high.

Nevertheless, strong macroeconomic fundamentals have the potential to influence the realty market of the whole nation. Real estate assets are likely to perform better when macroeconomic performance is better. GDP growth rate and real estate prices are closely connected to each other. In addition, as the interest rates fall, the demand for real estate increases, thereby, leading to a hike in real estate prices. Also, the price of residential property in India will rise too. The ratio of home prices to GDP growth will tell us a lot about the future economic performance of India. In fact, when there is high residential property prices to GDP ratio, it implies that the future productivity of an economy is high.