Notwithstanding rising interest rates on home loans and an increase in property prices, the real estate sector has witnessed resilient growth in the current year, with housing sales and the launch of new houses in Q2 of FY23 surpassing the pre-pandemic level of Q2 of FY20.
Housing prices have started to firm up after a two-year COVID lull and unsold inventories have declined on the back of rising housing demand, the Economic Survey 2022-2023 said on January 31.
It said that there may be a decline in prices on the back of a cut in import duties on many construction materials.
There has been a significant decline in the inventory overhang, which dropped to 33 months during Q3 of FY23 from 42 months last year, it said, quoting PropTiger data.
The unsold inventory stood at 8.5 lakh at the end of 2022 with 80 percent of the stocks under various stages of construction. This comes on the back of sustained sales momentum as the sector steadily recovers from the impact of the pandemic, it said.
Going forward, recent government measures, such as the reduction in import duties on steel products, iron ore, and steel intermediaries, will cool off construction costs and help to check the rise in housing prices, the survey said.
It noted that the pandemic brought about a change in individual home buyers’ sentiment in favour of owning a house. With the easing of curbs, there was an increase in interest in the residential housing sector and more so in the readily available and affordable segment. The hybrid work mode, with the privileges of working from anywhere, encouraged first-time home buyers to move away from metros, and this led to pent-up demand in the residential real estate markets of Tier II and III cities, it said.
Improvement in affordability in response to measures taken by the government during the pandemic, such as lower interest rates, reduction in circle rates, and cut in stamp duties on transaction of sale/purchase of immovable property, as well as the extension of the Real Estate Regulation Act (RERA) also played a significant role in the post-pandemic rebound of the Real Estate sector, it said.
Apart from housing, construction activity, in general, has significantly risen in FY23 as the much-enlarged capital budget (capex) of the central government and its public sector enterprises is rapidly being deployed, the survey said.
Housing price Indices
The annual variation in Housing Price Indices (HPI) market price ranged from an increase of 37.7 per cent in Bhubaneshwar to a contraction of 6.5 per cent in Indore in the Quarter Ended (QE) September 2022 over QE September 2021, the survey noted.
Out of the 50 cities, 43 saw an increase in the index, whereas 7 cities showed a decline annually. All of the eight major metros of the country, viz., Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune, recorded increases in the index on an annual basis.
The annual change in the HPI assessment price varied widely across the cities, ranging from an increase of 20.2 percent in Gandhinagar to a decline of 2.3 percent in Bhiwadi in the QE September 2022 over QE September 2021. Out of the 50 cities, 46 cities registered an increase in the index, whereas 4 cities experienced a decline, on an annual basis. All of the eight major metros of the country witnessed an annual increase in the index, the survey noted.
The National Housing Bank (NHB) publishes two Housing Price Indices (HPI), namely ‘HPI assessment price’ and ‘HPI market price quarterly’, with FY18 as the base year. HPI assessment price is based on the valuation prices of residential units collected from primary lending institutions. In contrast, the HPI market price is based on the market prices of unsold inventory collected from developers. A composite index is calculated for 50 cities across India using the population of the cities as weights.
Impact of Ukraine war on real estate sector
Housing prices have risen due to an increase in construction costs amid the Russia-Ukraine war, which hit global supply chains, the survey said.
The Economic Survey noted that the geopolitical tensions between Russia and Ukraine have again raised concerns regarding disruption in the global supply chain and its consequent impact on the real estate sector. It has affected the supply chain, resulting in price escalations of steel, cement, finishing materials, imported chemicals, and fuel, thereby increasing the overall construction cost and resulting in a rise in housing prices.
“With a volatile international market, the surge in prices of construction materials has pushed developers to halt ongoing construction. The Wholesale Price Index for Cement, Lime & Plaster has increased from 127.1 in December 2021 to 137.6 during December 2022, indicating an uptick in the input cost for construction,” the survey noted.
Real estate experts said that the Economic Survey 2022-2023 is upbeat about the sector.
"As per the survey, liquidity provided by the Government through various measures has kept the housing sector buoyant. Also, the overall affordability in the residential real estate sector was high during the post-pandemic period. Accordingly, the sector is witnessing more growth with consistent improvement as evident by new project launches,” said Harpreet Singh, Partner, Indirect Tax, KPMG in India.
"The Economic Survey 2023 provides an optimistic picture of India’s growth performance and outlook, amidst looming global recessionary concerns. The economy has largely recovered from the pandemic, with GDP likely to grow at 6.5% in FY2024," said Ramesh Nair, CEO, India, and Managing Director, Market Development, Asia, Colliers. "The reduced inflation levels should give some room for the RBI to keep repo rates stable over the next few months. This is likely to keep home loan rates stable and thus will give some breather to homebuyers, especially in the affordable and mid-range segments."
"Out of the 50 cities surveyed, the survey states that 46 cities registered an increase in the index, whereas four cities experienced a decline, on an annual basis. All eight major metros of the country witnessed an annual increase in the housing price index. Going ahead, housing prices will remain stable, led by the steady demand likely to be seen in 2023," Nair added.
