Indian property prices lagging behind inflation; affordability to improve

By Indradip Ghosh

BENGALURU (Reuters) – Rising house prices in India will gradually accelerate over the next few years, but will lag consumer inflation until at least 2023, according to a Reuters poll of property analysts. who expect improved accessibility.

Housing market activity was struggling before the COVID-19 pandemic, as many home builders were still short of cash after the government in 2016 withdrew high-denomination banknotes from circulation. Buyer demand was also not strong.

But unlike many property markets which have seen soaring property prices, price growth in India has slowed and activity has taken a hit as the coronavirus pandemic has thrown millions out of work and left thousands of unfinished housing projects.

Property prices in India, once on the rise, rose only 2.4% in the first three quarters of 2021, slightly less than last year’s 2.5%, the weakest since the Reserve Bank of India (RBI) started compiling the data in early 2010.

Nov.-Dec. 18 7 poll of 10 analysts predicted that home prices nationwide would rise 2.25% and 3.75% in 2021 and 2022, respectively. This is down from the 2.50% and 4.50% expected in August.

If they materialize, these annual increases would remain below consumer inflation, which is expected to average 5.2% and 5.4% in 2021 and 2022 in a separate Reuters survey on Monday.

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

“The ongoing vaccination campaign and reduction in COVID-19 cases has boosted consumer confidence since the second half of 2020. As buyers return to the market, developers are slowly phasing out rebate programs,” Ankita said. 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 increase property prices in close ranges, particularly in the move-in ready segment.”

A breakdown by city showed that house prices in Mumbai and Delhi would rise by 2.50% and 2.75% respectively next year. In Bangalore and Chennai, they were in turn expected to rise by 3.00% and 2.75%.

Meanwhile, the ultra-loose monetary policy that has spurred real estate activity over the past few years is likely to come to an end soon.

The RBI, which cut its policy rate by a cumulative 115 basis points last year, will make two increases of 25 basis points next year, bringing borrowing costs to 4.5%, according to a Reuters poll. separate.

“Home loan interest rates are currently at rock bottom, which has boosted home sales significantly over the past year,” said Anuj Puri, Chairman of ANAROCK Property Consultants.

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

Still, the 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 improving economic situation will improve affordability for potential customers, although firming prices will shift demand from high-end housing to mid-rise or affordable housing,” said Ajay Sharma, general manager of services at assessment (India) at Colliers.

“The RBI and the government are expected to infuse initiatives to improve affordability until 2023. The only precaution is the supply chain – if allowed to deteriorate, interventions will not be able to offset the rising costs.”

(Reporting by Indradip Ghosh; Polling by Sarupya Ganguly and Swathi Nair; Editing by Mark Potter)

Christina A. Kroll