Explained: How an oil shock from the Iran-Israel-US war could affect Indian housing

Any rise in crude oil and fuel prices triggered by the escalating Iran–Israel–US conflict could indirectly affect Indian homebuyers.

• Rising crude prices may gradually impact Indian homebuyer demand
• Higher fuel costs could increase construction and living expenses
• Affordable and mid-segment housing likely to stay resilient

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Any rise in crude oil and fuel prices triggered by the escalating Iran–Israel–US conflict could indirectly affect Indian homebuyers, but experts say the impact on housing demand is likely to be gradual and affordability-linked rather than an immediate shock.

Global oil markets have turned volatile amid fears of supply disruption in Middle East, raising concerns for India, which imports nearly 90 percent of its crude oil. International crude oil prices surged nearly 9 percent on March 2 following US and Israeli military strikes on Iran and retaliatory attacks by Tehran, raising concerns over fuel costs and supply disruptions.

Iran has announced the closure of Strait of Hormuz, which accounts for approximately one-fifth of the global crude oil flow route, leading to spike in crude oil prices.

On real estate front, experts said that while higher petrol and diesel prices do not directly alter home prices, they influence the cost of living, inflation and interest rates, which may delay home buying decisions.

They said that rising fuel prices could also affect construction costs, as cement, steel and transportation are energy intensive. However, developers are unlikely to immediately pass on higher costs to buyers, but it may slow the project timelines.

How fuel prices may affect homebuyers

Market observers said that for end-users, the first impact of rising fuel prices is usually felt in monthly household expenses. Higher transport and logistics costs tend to have direct impact on food prices, services and utilities, squeezing disposable income.

Abhishek Raj, Founder & CEO of Jenika Ventures, an NCR-based real estate consultancy firm, said that any increase in the prices of crude oil and fuel, which might be triggered by rising geopolitical tensions, could have a gradual impact on the demand for housing in India through the affordability route rather than the price route.

“With India being an importer of crude, any increase in the price of crude oil and fuel could have a contrary impact on the inflation scenario, which, in turn, affects the consumers’ willingness to spend, leading to a gradual impact on the demand for housing in the country,” he said.

Another Mumbai-based real estate analyst echoed similar views and said that when fuel inflation rises, households become more cautious about big-ticket purchases.

“Homebuyers may not cancel plans, but they may delay decisions or look for smaller units or better payment plans,” he said, requesting anonymity.

Construction costs and home prices

Pyush Lohia, Director, Lohia Worldspace, said that geopolitical tensions and swings in crude oil prices could have a gradual effect on the housing sector — mostly by nudging up inflation and input costs.

“While higher fuel prices may push up construction and logistics expenses, the impact on buyers should be linked to affordability and not create an immediate disruption,” he said.

Rising fuel prices can push up construction costs, given that cement production, steel manufacturing and material transportation are highly energy-intensive. Experts said that price increases, if any, would more likely be seen in new launches rather than ongoing projects.

Affordable and mid-segment to remain strong

Historically, India’s affordable and mid-income housing segments have shown greater resilience during periods of macro uncertainty. Demand in affordable and mid-segment is largely driven by end-users rather than investors. This makes it less sensitive to short-term volatility in fuel or commodity prices, experts said.

They added that luxury housing, however, tends to react faster to sentiment shifts, which means buyers of this segment may take longer to close deals during periods of uncertainty.

Outlook

Market observers said that while a prolonged oil shock could weigh on inflation and borrowing costs, experts do not expect a sharp disruption in India’s housing market.

Unless the geopolitical conflict escalates into a sustained global energy crisis, India’s housing demand is expected to remain intact, they said.