As 2022 comes to a close, it’s time to look back on how the year panned out for the housing market and what lies in store for the next year. The highlight of this year was the increase in interest rates – the benchmark rate shot up 225 basis points since May, raising mortgage rates and monthly home loan installments while reducing home affordability.
The second most important trend that shaped the housing market this year was skyrocketing rents. Delhi-NCR, Bengaluru and Mumbai saw rentals rise 10 to 30 percent as employees returned from their hometowns to rejoin work after three Covid waves and new and ready housing options were largely reduced as new construction did not keep pace with demand.
Experts also point out that decision-making time by homebuyers this year increased from 40 to 60 days to even months. It’s also being seen that mid-segment buyers are gradually preferring renting a house for now and pushing their final decision for the future.
Take the case of Akash Sachdeva, an IT professional and a prospective homebuyer. Sachdeva and his wife were planning to buy a house this year but job uncertainty due to global market cues and cost-cutting at his firm forced them to adopt a wait-and-watch approach. They recently decided to renew the rental agreement despite the landlord insisting on a 15 percent increase.
Real estate experts say going forward prolonged inflation, increasing raw material costs, uncertainties caused by the global political situation and higher interest rates domestically can have an impact on mid-segment homebuyers, adding, the housing market will largely also be influenced by policies announced in the upcoming Union Budget, the state of the employment market and the overall economic situation.
A likely US recession in 2023 will impact housing demand in India, at least marginally. Reduced flows of IT/ITeS work outsourced to India and further layoffs will hit residential absorption here as IT employees contribute a sizeable chunk of the housing demand.
So far, the rate hikes have had only a marginal impact on residential absorption. While more affordable housing buyers stepped back from purchase decisions, mid-income and luxury home sales were not markedly affected. However, there is a tolerance limit even to the most upbeat sentiment.
“Readings from Anarock’s most recent Consumer Sentiment Survey clearly indicated that if home loan interest rates rise above the 9.5 percent mark, we can expect to see considerable housing demand contraction,” said Anuj Puri, Chairman – Anarock Group, a real estate consultant.
According to data shared by Anarock, housing sales were robust in the January-September period touching 2.73 lakh units, more than the 2019 levels when approximately 2.61 lakh units were sold. The mid-range (Rs 40-80 lakh), premium (Rs 80 lakh-Rs 1.5 crore) and luxury segments (more than Rs 1.5 crore) were the showstoppers of 2022. In contrast, affordable housing had a lean time, with more buyers in this segment going into wait-and-watch mode. In the first nine months of 2022, the affordable housing supply reduced to 21 percent of approximately 2.65 lakh units launched in the top seven cities during this period.
While the Anarock data projects total sales in the top 7 cities to exceed 3.6 lakh units in 2022 (in 2014, the previous peak year, 3.43 lakh units were sold), real estate experts say that this may still be less as much of the demand is gradually getting impacted due to the rise in interest rates that have reduced home loan affordability and increased instalments payable by homebuyers.
Luxury sales dominated
Luxury housing sales held forte in 2022 as this segment is not dependent on housing loans.
“Luxury housing saw interest from various demographics. This can be attributed to trends like hybrid and Work-From-Home that induced NRIs and UHNIs to invest in second homes or upgrade their homes with more amenities and facilities,” said Shalin Raina, Managing Director, Residential Services, Cushman & Wakefield. He said the year may end with 250,000 units getting launched, which is even higher than the peak level in 2019.
“The year also witnessed a transition in the market with a growing preference for premium/luxury homes. The share for such project launches stood at 25 percent in the year. Going forward, prolonged inflation and higher interest rates could have a mild effect on mid-segment homebuyers,” he said.
Pankaj Kapoor of Liases Foras said a large number of builders in Mumbai have utilised their premiums by launching redevelopment projects. Most of these are in prime locations in Mumbai, which means that the demand for these will either emanate from buyers wanting to upgrade homes to buy into luxury projects with modern amenities. There is also demand for luxury homes in the resale market, he adds.
Rentals hit the roof
Experts said the trajectory of rising interest rates has given the rental market a fillip as potential homebuyers are finding purchasing a house to be beyond their budget.
Also, with employees returning to offices, the rental housing demand in Delhi-NCR has shot through the roof, leading to an almost 20-25 percent jump in rents in the established markets of Gurgaon and Noida.
Apart from rising demand, availability has also fallen considerably as investors, who have made profits, have exited ‘saturated’ real estate markets to reinvest gains in other upcoming locations. A delay in delivery of under-construction units and ready-to-move-in units bought to live in and not as investments are also fuelling the rental demand.
After offices reopened, the rental demand in Noida shot up by around 25 to 30 percent. A 2BHK unit available for Rs 10,000 per month during the pandemic has now gone up to Rs 15,000 while a 3BHK earlier available for 12,000 is now quoting Rs 16,000 to Rs 17,000.
After offices reopened, the rental demand in Noida shot up by around 25 to 30 percent. A 2BHK unit available for Rs 10,000 per month during the pandemic has now gone up to Rs 15,000 while a 3BHK earlier available for 12,000 is now quoting Rs 16,000 to Rs 17,000.
In Mumbai, experts said around 3,000 projects were under construction, of which about 60 percent were redevelopment projects. Due to this, the monthly rentals have increased by 10-15 percent.
In Bengaluru too, demand for rental housing has risen and the supply is low. Preferences of landlords too have changed. Rents in the city have increased by almost 25 percent and the minimum deposit amount has also gone up. Brokers have started sifting through the LinkedIn profiles of tenants before finalising deals with landlords.
However, this may taper off in 2023 as more supply hits the market. “Rents may begin to cool off in 2023 as new housing stock gets delivered,” said Dhruv Agarwala, Group CEO, Housing.com, Proptiger.com and Makaan.com.
Consolidation: This was back in focus in 2022. To cite an example, listed property developer Sunteck Realty entered into a joint development agreement with a local real estate developer to undertake a 2.5 million sq. ft. residential-led mixed-use project on a 7.25-acre land parcel in Mira Road near Mumbai. The project is estimated to have a total revenue potential of Rs 3,000 crore.
Resale market remained in focus: Home buyers largely avoided buying into under-construction projects, except those for whom new launches were the only option on account of reasonable pricing.
Pricing trends
While some real estate experts say that the housing price increases are expected to be moderate as some developers may be under pressure to sell unsold inventory, Crisil has projected that housing prices may increase 6-10 percent this fiscal.
As the hybrid working model continues in many sectors, demand for homes has not been impacted much due to which residential prices are expected to rise 6-10 percent this fiscal and a further 3-5 percent in the next across the top six cities because of a steep increase in raw material, labour and land costs, and relatively favourable demand-supply dynamics, a CRISIL Ratings study said.
Large listed residential realtors will clock sales growth of around 25 percent on-year this fiscal and 10-15 percent on that high base next fiscal, a CRISIL Ratings study of 11 large listed residential developers indicated. This is despite a moderation of up to 15 percent in affordability since the second half of last fiscal as capital values and interest rates have increased, stamp duty has been reinstated in some places, and inflationary pressures continue.
Controlled launches, offers may dominate 2023
2023 will continue to witness controlled new launches in most of the top cities.
The launch trend in 2022 was calculated caution, with developers refraining from putting more inventory on the market than it could reasonably absorb – especially in already abundantly supplied markets, said Puri of Anarock.
If there is more housing supply (thanks to a large number of launches, especially in a market such as Mumbai, where several developers launched new projects or entered the redevelopment segment to exhaust the premiums launched by the government), or for that matter, there is another COVID wave, the real estate market may replicate trends prevalent in 2016. That year, builders had to resort to offers and discounts to push sales on account of high inventory and subdued demand.
“If sales do not catch up in 2023, builders may have to offer discounts that may cut into their margins. They will not have to wherewithal to hold inventory and will be forced to offer discounts. For them it will be a high volume, low margin game, something akin to the FMCG market,” said Kapoor.
There were close to 4.22 lakh launches in 2022 and the current unsold inventory stands at 12.53 lakh units (38 months of inventory). There will be pressure to sell unsold inventory and hence price rise will be moderate. “Builders will definitely not have the option to increase prices. Instead, they will have to absorb the increase in costs and offer lucrative deals to customers. It will by and large remain a buyers’ market in 2023,” he said.
On a positive note, 2023 may well turn out to be an opportune time for homebuyers who missed the bus in 2022 as builders may introduce deals to lure customers to shed unsold inventory. If luck favours builders, governments may also decide to offer sops to push sales.
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