Post-covid housing prices surge, sales swell in the second quarter of FY23

India’s housing sector has seen a sharp revival in demand and supply on the back of buoyant consumer sentiments and has caught up to its pre-pandemic levels this fiscal. The resilient show of the sector was contrary to traditional economic belief, as housing prices and sales rose in tandem during this period.

The rise in the sales volume of housing units comes at a time when the Reserve Bank of India (RBI) resorted to multiple rate hikes. High inflation has dented consumers‘ disposable income and hiked developers’ input costs. Yet, our Housing Price Index (www.housingpriceindex.in), tracking eight key real estate markets in India, and jointly developed by housing.com and the Indian School of Business (ISB), captured strong consumer sentiment driving investment in real estate in Q2 of this fiscal.

The confidence in future earnings coupled with the pandemic-induced importance of homeownership for safety and security are seen as key factors that have accelerated property sales in the top metros. The upcycle in demand momentum and the renewed interest in the property market also helped revive investor confidence in the sector, which was seen to be waning since 2013-14.

Given the strong demand for housing (1 to 3 BHK units) in major cities, developers are now in the position to pass on some of the hikes in their input costs to the customer. It is to be noted that property prices in India remained muted due to a slowdown in demand and a general trust deficit arising from supply side defaults and other policy interventions.

In the second quarter, unit prices on an all-India basis witnessed a 1.8% jump from the previous one. The price hike was recorded at 3.5% year-on-year. Much of this price rise is attributed to the last six months, during which real estate prices in major cities went up by around 2.5%, showing a much steeper price rise from earlier quarters.

From India’s housing sales quantity index, covering all unit sizes across all markets,we observed sales picking up in the July-September quarter. Housing sales in July and August 2022 (114.2 and 117.6, respectively, on the index) surpassed the housing sales levels of January 2020 (113.2), convincing us that India’s housing sales figures have now started to cross the pre-pandemic levels.

Sales numbers jumped by around 10% in the current quarter. We recorded y-o-y increase in sales for Q2 2023 at about 76%, compared to 26% in the same quarter last year. This rise stems from a low-base effect and positive consumer sentiment regarding property investments. The positive sentiment that contributed to the resumption of housing demand could be attributed to many factors. Like in the US and many other markets, housing demand has gone through the roof. India may be reflecting a similar trend.

Second, despite recent rate hikes, major developers have increased prices but countered the cost increase with a slew of targeted incentives for buyers in the ongoing festive season. The supply side is also seen to be charging a premium for their credibility and project delivery track record, factors crucial for the buyer who is assessing the investment against a checklist of parameters before making a lifetime purchase.

Third, given the high volatility in the stock and commodity derivatives market, the real estate market appears to be a more stable option, making for a safe-haven investment in these tumultuous times. In mid-October 2022, the Nifty 50 had shrunk by about 6% y-o-y. At the same time, price valuations in the housing market improved by 3.5% and sales improved by about 76%.

The ISB-Housing.com HPI also provides insights into granular city-level trends. Bengaluru has recorded the highest price rise of 5% during this quarter among the eight cities. Mumbai clocked significantly higher sales figures than in January 2020. In Maharashtra, stamp duty rates were increased by 1%, effective from April 2022. Defying standard economic theory, Mumbai recorded its best August performance in property registrations and stamp duty revenues despite the duty hike and other factors contributing to upward pressure on prices.

The positive sentiment seen thus remains strong for the months to come. What remains to be seen is how long the current positive sentiment sustains given the global macroeconomic situation.

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.