Despite Rate Hike, Property Prices Across India Set To Rise Fastest In Five Years
Home prices were expected to rise 7.5 per cent nationally this year, the fastest growth in five years, while average house prices were forecast to rise 6.0 per cent next year and in 2024
New Delhi: Prices of houses are set to rise this year to a pace not seen in half a decade. According to analysts of Reuters poll of property, higher interest rates will compress affordability, especially for first-time buyers.
During the Covid-19 pandemic, India’s real estate market remained quiet due to lack of demand compared with other world markets that rocketed higher as households scrambled to buy more living space. Those markets are now cooling.
According to the report, the release of pent-up demand in the country has stirred the housing sector along with a return of large institutional investors.
The poll suggested that home prices were expected to rise 7.5 per cent nationally this year, the fastest growth in five years, while average house prices were forecast to rise 6.0 per cent next year and in 2024.
The real estate sector sees the surge in demand despite expectations for sharply higher interest rates after the Reserve Bank of India (RBI) earlier this month surprised markets with a 40 basis point repo rate hike to 4.40 per cent and hinted more are coming soon.
Rohan Sharma, director at JLL Research, said, “We are entering a period of price growth, driven in the short- to immediate-term due to rising input costs, and medium- to long-term with demand levels remaining strong and the existence of big players backed by institutional money.”
Sharma said given that more rate hikes are coming, “The window of opportunity for homebuyers to enter the market at the current affordable (levels) will close over the next 2-3 quarters.”
Over 60 per cent of respondents to an additional question in the survey, eight of 13 said affordability for first-time homebuyers would worsen over the next two years.
Expensive house prices have led many would-be first-time homeowners to rent instead. But rents too are expected to become more expensive, according to a majority of respondents.
Vivek Rathi, director of research at Knight Frank, reckons for every one percentage point increase on a home loan interest rate, affordability is reduced by more than 7 per cent.
Knight Frank, Colliers International, JLL Research, Liases Foras, and TruBoard Partners all expect a significant slowdown in housing activity if rates reach 6 per cent or above.
At the same time, input costs on basic materials have gone up significantly over the past few months globally because of the pandemic-related supply chain disruptions, made worse by Russia's invasion of Ukraine in February.
There is little reason to expect this trend to reverse any time soon. That means developers who have been absorbing these costs are now passing these on to buyers which in turn will also contribute to accelerate house prices, analysts said.
“Improving demand and an increase in inflationary trends of basic raw materials in construction including cement, steel and labour are the key factors which are likely to push property prices northward,” said Anuj Puri, chairman at Anarock Property Consultants.
The latest poll showed house prices in Mumbai and Delhi, including its surrounding the National Capital Region, will rise between 4 per cent and 5 per cent this year and next, while house prices in Bengaluru and Chennai, where analysts said homes were fairly valued, were forecast to rise 5.5 per cent to 6.5 per cent over the course of the next two years.
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