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The Indian residential property market is gradually coming out of one of its worst downturns. The new supply and sales trends in the latest quarter (April – June 2022) are encouraging and suggest that developers are returning to the market, with new housing supply reaching a seven-year high. The demand momentum has also sustained pace, indicating a positive market sentiment towards investing in the property market.

To gauge the recent market trajectory, we use the Housing Price Index (HPI) with the help of, https://www.housingpriceindex.in/ jointly developed by the Indian School of Business (ISB) and Housing.com. We track housing prices and quantity sold in eight major cities across India.

From the aggregate price index for India, we note a marginal increase of 0.4% in average prices between April and June 2022. This figure was around 0.3% during the same period last year. The trend of minimal rise in prices observed during the last few quarters has continued during the past three months too. The Y-o-Y increase in prices in June 2022 was 2.8%. The marginal price hike comes on the back of rising costs owing to inflationary pressures and also the premium attached to the ready-to-move in properties, which are in high demand, post-pandemic.

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From the Quantity Index across the top-eight cities, property sales on average, have witnessed an upward trend over the past six months. The index was above the 2017 base of 100 for the entire Q2 of this year. This has happened for the first time ever since the pandemic started. Though moving within close ranges, the sequential growth in quantity index is a positive sign for the market. We should emphasize that the current market is primarily driven by the end-user. Hence, even though the growth of the index is slow-paced, it is the sustained demand momentum which is guiding the W-shaped recovery in the market. The quantity levels are well above March 2020 levels; however, they are yet to reach February 2020 levels. At the end of June 2022, the number of units sold across the country is around 8-9% lower than pre-pandemic levels (February 2020).

Along with aggregate numbers, HPI also provides insights into granular city-level trends. The price trends at the city-level are similar to the all-India index. Quantitatively, the price change has been between 0-2% for all cities except Mumbai which registered a 0.33% fall in its prices during the quarter. In contrast, the quantity index at the city-level offers interesting insights. The numbers are well above the pre-pandemic levels for Mumbai, and it has reported an increase of around 22% from January to June 2022. The strong rebound in sales is mainly coming from the increase in sales in Mumbai. However, other cities too have continued to witness moderate growth in the past six-months.

Having witnessed a W-shaped recovery after the second wave of Covid-19, this positive outlook and upward trends though need a cautious reading. The upward trends are continuously challenged by global inflationary pressures, reversal of Central banks’ accommodative monetary policy stance, spillover of geopolitical tensions, and other financial market volatilities, which are dampening growth momentum.

As we move ahead, a series of rate hikes are imminent in the second half of the year. This would be in continuation of the current set of rate hikes by the Reserve Bank of India as it continues to tame inflation. On the other side, this high inflation has negatively impacted the consumers’ real income on the demand side and the input construction costs for the supply side. Both can have a dampening effect on the property market in the short term. However, given the renewed importance of home ownership and home loan rates still below their pre-Covid levels, action of fence-sitting homebuyers would be crucial in determining the market momentum.

(Ankita Sood is director and head of research at REA India, Shekhar Tomar is an assistant professor of Economics at ISB and Saiganesh Ramesh is a research associate at SRITNE.)

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