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Business News/ Opinion / First Person/  India's housing market enjoys rapid growth, but can it last?

India's housing market enjoys rapid growth, but can it last?

Demand for homes soars, prices follow suit

Amid the surge in demand, we now see the pass-through of increased input costs to the homebuyers (Photo: Mint)Premium
Amid the surge in demand, we now see the pass-through of increased input costs to the homebuyers (Photo: Mint)

The Indian real estate market is showing robust performance in the second quarter of 2023, with sales maintaining its momentum as new supply continues to pour in. Remarkably, even with the influx of new properties, prices in primary economic hotspots are skyrocketing. The ISB – Housing Price Index (HPI) shows an increase of 7.21% in property prices during Q2 2023, a jump from both Q1 2023’s 6.78% and Q2 2022’s 2.83%. A similar upward trend is noted in city-specific indices, with property prices in Mumbai, Delhi NCR, and Bengaluru witnessing an impressive rise between 6 to 15%.

Housing Price Index - All-India Price Index
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Housing Price Index - All-India Price Index

This surge in property prices is being attributed to several factors, including the renewed interest towards home ownership and upgrading configuration and lifestyle amid the structural transformation after the pandemic world. Additionally, amid the surge in demand, we now see the pass-through of increased input costs to the homebuyers, which developers were previously reluctant to offload amid the sluggish market demand. There is also a premium attached to the ‘much in demand’ but ‘limited in supply’ ready-to-move-in property. All these factors have collectively pushed up property prices across cities.

Property sales across the top-8 cities registered a growth of 9.91% (y-o-y) with property sales in Mumbai leading the tally and growing at 16.14% compared to the same period in the preceding year. While there's an increase in annual sales, there's been a sequential drop in both aggregate and city-level indices, primarily owing to sluggishness in the affordable and mid-range segments. This being the price-sensitive end of the spectrum, any price change in terms of the pass-through from the supply side or an increase in the home loan outgo impacts sentiments in a negative way. This drop in sales ranges from 4% up to 24%.

Housing Price Index - All-India Quanity Index
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Housing Price Index - All-India Quanity Index

As we transition into the third quarter of 2023, it will be interesting to see if this period can outdo its preceding year’s performance. The upcoming quarter is also marked by the festive season, which is a significant sentiment driver for the property market. However, the sustainability of the current sales will be put to the test amid the absence of any external incentives to boost demand or drive consumption across the board. Given the mismatch of demand and supply in key markets, we expect prices to hold strong or even inch upwards, making it more tough for first-time buyers to enter the market. Overall, the property market in India is expected to remain buoyant in the near term, but there are some risks that need to be monitored. With the rising CPI fueled by soaring vegetable prices, further monetary tightening seems imminent. Layoffs as well as global economic uncertainties may impact housing demand in the short-medium term. So, homebuyers may adopt a wait-and-watch approach for now until prices cool down.

(Ankita Sood is the director and head of research at REA India - Housing, PropTiger and Makaan, Shekhar Tomar is an Assistant Professor and Saiganesh Ramesh is a Research Associate at the Indian School of Business)

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Published: 10 Aug 2023, 09:19 AM IST
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