Power Point

Housing on road to recovery but potholes loom

  • We see window of opportunity closing for home buyers over the next few quarters

Shekhar Tomar & Saiganesh Ramesh
Updated10 May 2022, 06:10 AM IST
Photo: iStock
Photo: iStock

A year back, we at the Indian School of Business, started tracking housing prices across eight major real estate markets of India, to aid investors, policymakers, and home buyers make informed decisions. We had predicted a W-shaped recovery trend for India’s housing market after the second covid wave. While that prediction did fructify broadly, the ISB-Housing.com Housing Price Index (HPI) has, since then, captured some more positive, and some concerning, trends that could impact India’s housing demand going ahead.

Our W-shaped recovery prediction came on the back of an affordable housing push by the government, a prevailing low interest regime, slashed stamp duty charges in certain states and aggressive pricing policies pursued by real estate developers through a pandemic-ridden 2021-22. The quantity index at an all-India level, which signifies real estate units sold over a period, showed a 15% year-on-year (y-o-y) growth in March 2022 sales numbers. However, at the end of March 2022, we see that the number of units sold across India was about 14-15% lower, when compared with the pre-pandemic sales of FY 2020-21.

This gap in full recovery of housing units sold remained despite only a marginal price increase of 0.02% in the last three months. This figure was around 0.3% for Q4, FY 2020-21. The y-o-y price increase was around 2.2% for March 2022. From the HPI data collected monthly from over 80,000 real estate developers and brokers in eight cities, we observed that, for the two-year period prior to March 2020, developers would hike unit prices at a much higher annual average rate of 3.2% per year.


However, from 2020 to 2022, the average hike in unit prices has moderated to 2% annually. These variations in price hikes are calculated from all-India averages of all units sold across eight major real estate markets between FY 2018-19 and 2021-22. A sharp drop in sale of units post the lockdown in March 2020 had also impacted prices sharply that year, which has a bearing on the lower rate in price hikes that is still prevailing now.

Apart from the aggregate-level, we can also look at granular city-level changes through our indices. While average change in price indices for cities is similar to the aggregate price index, there are interesting variations across quantity indices. Sales in Mumbai have reached a level similar to the pre-covid period. Pune has registered a sustained growth in sales, while most other cities have seen stagnation or low growth.

In summary, developers had restrained themselves from price hikes, despite multiple triggers in the last two years. While post-pandemic inflationary trends continue unabated, developers will soon face the pinch of rising input costs, and, at some point, decide to pass this increase in input cost to the final consumers. Also, with persistently high global inflation, the Reserve Bank of India has finally begun to tighten the monetary policy, in line with other central banks. It would lead to an increase in the borrowing costs for housing loans.

At this point, we see the window of opportunity closing for home buyers over the next few quarters. Whether they take advantage of the prevailing lower housing cost and low interest rate regime, remains to be seen.

Shekhar Tomar is Assistant Professor of Economics at Indian School of Business and Saiganesh Ramesh is research associate at Srini Raju Centre for IT and the Networked Economy. Views are personal.

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First Published:10 May 2022, 06:10 AM IST
HomeMoneyPersonal FinanceHousing on road to recovery but potholes loom

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