Indian house prices will lag behind inflation; affordability to improve

Trucks are parked at the site of a blocked residential construction project in Mumbai on March 19, 2015 REUTERS / Danish Siddiqui

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BENGALURU, Dec. 8 (Reuters) – Rising house prices in India will gradually accelerate over the next few years, but will be lower than consumer inflation at least until 2023, according to a Reuters poll from real estate analysts who expect improved affordability.

Housing market activity was struggling before the COVID-19 pandemic, as many home builders were still running out of money after the government in 2016 pulled high-value banknotes from circulation. Demand from buyers was not strong either.

But unlike many real estate markets which have seen house price spikes, price growth in India has slowed and activity has been hit as the coronavirus pandemic has thrown millions out of work and left thousands. unfinished housing projects.

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India’s once-sky-high house prices rose only 2.4% in the first three quarters of 2021, just below 2.5% last year, the lowest since the Reserve Bank of India (RBI) began compiling the data in early 2010.

Nov 18-Dec 7 polls of 10 analysts have predicted that nationwide house prices will rise 2.25% and 3.75% in 2021 and 2022, respectively. This is a deterioration compared to the 2.50% and 4.50% expected in August.

If realized, those annual increases would remain below consumer inflation, which is expected to average 5.2% and 5.4% in 2021 and 2022 in another Reuters survey on Monday.

But average Indian home prices are expected to rise 6.5% and 6.0% in 2023 and 2024, exceeding consumer price inflation.

“The ongoing vaccination campaign and reduction in COVID-19 cases have boosted consumer confidence since the second half of 2020. As homebuyers return to the market, developers are phasing out rebate programs,” said Ankita Sood, director and head of research at REA. India.

“However, amid the threat of new variants and uncertainty over the resurgence of cases, developers will raise house prices within narrow ranges, particularly in the home equity segment.”

A city analysis showed house prices in Mumbai and Delhi to rise 2.50% and 2.75% respectively over the next year. In Bengaluru and Chennai, they in turn are expected to increase by 3.00% and 2.75%.

Meanwhile, the ultra-accommodative monetary policy that has boosted real estate activity in recent years is expected to come to an end soon.

The RBI, which cut its policy pension rate by 115 basis points last year, will make two 25 basis point increases next year, raising borrowing costs to 4.5%, a report revealed. another Reuters poll.

“Mortgage interest rates are currently at an all-time low and this has significantly boosted home sales over the past year,” said Anuj Puri, President of ANAROCK Property Consultants.

“As long as the low mortgage rate regime continues, many first-time homebuyers will come forward and buy their homes. And when these rise, that could again force many buyers to delay their decision.”

Still, all nine analysts who answered another question said affordability would improve over the next 2-3 years. It was expected to worsen in other major housing markets.

“An improvement in the economic situation will improve the affordability of potential customers, although the strengthening of prices will push the demand for high-end housing towards mid-range or affordable housing,” said Ajay Sharma, general manager of housing services. evaluation (India) at Colliers.

“The RBI and the government are expected to inject initiatives to improve affordability through 2023. The only caution is the supply chain – if it is allowed to worsen, interventions will not be able to offset rising costs. “

(For more articles from Reuters quarterly housing market surveys:)

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Reporting by Indradip Ghosh; Poll by Sarupya Ganguly and Swathi Nair Editing by Mark Potter

Our Standards: Thomson Reuters Trust Principles.

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Christina A. Kroll