Why home-buying could become more affordable next year

Affordability to buy homes dipped in 2022 and 2023 after interest rates went up and property prices too shot up in some cities. (iStockphoto)
Affordability to buy homes dipped in 2022 and 2023 after interest rates went up and property prices too shot up in some cities. (iStockphoto)

Summary

  • An interest rate cut, property prices staying at a reasonable level, salary increments and better job opportunities can all help in improving home affordability

Affordability to buy homes dipped in 2022 and 2023 after interest rates went up and property prices too shot up in some cities. However, market watchers believe that affordability may improve next year. Why is this so? Mint explores:

How has affordability dampened?

Affordability levels for home purchases saw a decline in 2022 led by global recessionary winds and rising interest rates. The Reserve Bank of India (RBI) had raised the repo rate by 250 basis points between May 2022 and February 2023. This increased the burden for home loan borrowers. However, after October 2020, there had been an increase in home prices in most cities on the back of a return in demand and a surge in home sales. Residential price growth remained strong over the past 12 months amid sticky interest rates. Affordability weakened but not the sales momentum.

What factors can boost affordability?

An interest rate cut, property prices staying at a reasonable level, salary increments and better job opportunities can all help in improving home affordability. Last week, RBI’s Monetary Policy Committee decided to keep the repo rate unchanged, which can encourage home loans. A December report by Deutsche Bank said the interest rate cycle appears to have peaked and RBI is unlikely to go for further hikes, unless necessary. In fact, rate cut is likely to happen in June. Salary hikes in 2024 are expected to be almost at par with 2023, with sectors like manufacturing and financial services actively hiring.

Will the home sales run continue?

A prolonged slowdown in the housing sector and pent-up demand played a key role in the turnaround of the sector after the pandemic. Despite interest rate and price rise concerns, sales continued. It is expected that the sales run will continue next year too, except for a blip due to the general elections when project approvals are likely to be on hold, delaying launches.

Which cities are the most affordable?

Kolkata remains the most affordable residential market among the top seven cities. Next are Hyderabad and Pune, followed by Chennai. However, Hyderabad has seen the strongest growth in prices post-covid. Mumbai and Gurugram are currently the most expensive property markets. Of the 58 ultra-luxury homes sold at over 40 crore each in 2023, as many as 53 were in Mumbai, as per Anarock data. As luxury home sales surge, developers are inclined to launch more expensive homes.

Will builders hike prices in 2024?

Top builders, who have seen a spike in home sales in the last two years, have been increasing prices. However, certain markets such as Gurugram, Mumbai and pockets of Hyderabad have seen a sharper rise, with fears they could get over-heated. Property analysts also think land prices, which have been rising across cities, will also determine how home prices move. However, given that home sales have continued the bull run, most developers are optimistic that a continued rise in prices going forward would not deter buyers.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

MINT SPECIALS