With inputs from Mehul Thakkar, Ashish Mishra, and Souptik Datta.
A shortage of inventory, regulatory tailwind, and infrastructural boost across major Indian cities are driving unprecedented demand for housing in the country.
Despite hardening property prices and home loan interest hikes in early 2023, home sales peaked last year with approximately 4.76 lakh units being snapped up in the top seven cities, registering a 31 percent year-on-year jump.
At approximately 1,53,870 units, the Mumbai Metropolitan Region saw the highest sales, followed by Pune, where 86,680 flats were sold, data from ANAROCK, a real estate consultancy firm, showed.
The National Capital Region (NCR) recorded sales of approximately 65,625 units, a 3 percent growth over the previous year. Bengaluru witnessed the sale of 63,980 units in 2023, an annual increase of 29 percent, while Hyderabad recorded sales of 61,715 units.
According to domain experts, the residential real estate sector saw renewed demand following the pandemic from institutional investors, despite economic global headwinds. The COVID outbreak was, in that sense, a game changer that served to shift Indians’ sentiments towards the housing sector.
Infrastructure upgrades in bigger cities also boosted the demand and opened new areas for development.
Regulatory push to the housing sector
Real estate experts say that after the pandemic, the government provided a significant push in terms of concessions and other benefits to drive demand in the Indian housing sector.
For example in May last year, the Maharashtra government announced a waiver of 50 percent of the premium payable by real estate developers for its cluster development policy in Mumbai for one year, a move to aid the redevelopment of old buildings in the city.
And over the last two years, several state governments like those in West Bengal and Karnataka extended exemptions on stamp duty and reduction in circle rates to boost homebuyer sentiments.
"On the regulation front, too, people are comfortable in buying real estate assets due to RERA (Real Estate (Regulation and Development) Act) and other interventions, and developers are delivering quality projects on time. There is also an effort on the part of the government to revive delayed projects. So there is so much activity that definitely boosts consumer confidence in the real estate market and it is getting more streamlined. We also feel that developers are launching projects more cautiously," said Vimal Nadar, senior director and head of research at property consultancyColliers India.
However, most experts believe that the renewed housing demand in India can also be attributed to both investor participation as well as end users' aspirations to own a home today.
Investors back to the market, cautiously
Post-COVID, with the stock market gaining momentum after an initial downturn, money flowed into the investor class, fostering interest in residential real estate.
"Investors subsequently became key players, prompting developers to launch projects with the anticipation of substantial appreciation, sometimes up to 25 percent. Pre-launches by grade A developers, coupled with staggered payment plans, became a strategic move benefiting investors," said Shalin Raina, managing director of residential services at real estate services company Cushman & Wakefield.
However, while sales steadily appreciated between 2021 and 2023, the growth rate of the residential sector had moderated from 50 percent in 2021 to 35 percent in 2023, on account of regulatory interventions and increased home loan rates, property management company Knight Frank India pointed out.
"Today, investors will have to lock in the money for an under-construction project for three to five years. High capital rates and a lack of easy exit from the investments have put several investors on wait-and-watch mode," said Vivek Rathi, national director, Knight Frank India.
Residential sector to see renewed interest from investors
Yet, experts add that in the post-Covid era, the residential sector witnessed a resurgence from institutional investors.
According to data from JLL India, 2018 and 2019 combined saw 21 percent of the institutional flow of funds in the residential sector as a percentage of the total flow in Indian real estate. The percentage increased to 26 percent in 2022 and 2023 combined, thus indicating renewed interest towards the residential vertical, according to Samantak Das, Chief Economist & Head of Research, JLL India.
"We expect this trend to continue in 2024, where more offshore investors will continue to invest in the Indian residential sector," Das added.
In total, the Indian real estate sector saw $11,849 million coming in as institutional inflows between 2018 and 2019, going up to $14,417 million in 2021-2022. However, it dropped to $10,406 million a year later owing to global headwinds, JLL India data showed.
Homebuyers' sentiments improve despite higher interest rates
As stated earlier, institutional interest was a big contributor, but end users continue to drive latent demand in the sector, especially after the pandemic that changed buying preferences and brought in a sense of ownership among buyers.
Das explained that home loan rates continue to play a major role in homebuyers' sentiments towards owning a house.
The rate of interest was very high five or six years ago at around 11-12 percent. By the end of 2021, however, it came down to about 7 percent and during that time, property price growth was at 3-5 percent across India. In 2022, inflation picked up, lasting till February 2023, and the sector saw a rise of 250 basis points in the Reserve Bank of India’s policy rate that pushed the loan rate to 9 percent.
"We are confident that the central bank through its monetary policy and the government through the fiscal policy will be able to contain inflation in 2024. And with an estimated GDP growth of 7-8 percent by March 2025, along with inflation under control, we expect there will be a repo rate cut by 60-80 basis points through 2024 that will further reduce interest rates," Das said.
Moreover, real estate developers say those looking at property as investments only started entering the market in the second half of last year. "Homebuyers who came into the market in 2020 are now encashing from the existing stocks and investing in real estate today because of the high returns and price appreciation," Praveer Srivastava, senior vice president, residential sales at Bengaluru-based developer Prestige Group, told Moneycontrol.
Resurgence of middle-class buyers, changing preferences
However, the rise of the middle class realigned the market dynamics, with buyers evincing a strong inclination to elevate their standard of living on the back of higher incomes. This allowed major developers to expand in the market and offer quality products at differentiated prices.
"Covid proved to be quite a game changer in altering homebuyer sentiments towards housing, as they started to primarily view homebuying as more of a necessity than an investment. This brought about a substantial change in demand which was further validated by a strong wave of housing registrations, especially in the last year," Cushman & Wakefield’s Raina added.
Infrastructure push to the sector
A renewed focus on infrastructure in cities like Mumbai, Bengaluru and Delhi opened up new potential markets.
For example, the soon-to-be-inaugurated Mumbai Trans Harbour Link connects Sewri to Chirle near Panvel. It creates an ecosystem at the start and end points of this infrastructure upgrade, Nadar of Colliers said.
Last year, the Yamuna Expressway Industrial Development Authority (YEIDA) nearly doubled the proposed allocation for the upcoming Noida International Airport in Jewar outside Delhi from the previous year, with a budget of Rs 805 crore in 2023-24, Moneycontrol reported.
And by January 2024, YEIDA is likely to start the land acquisition process for four sectors in the area—three will be for mixed use and one residential.
Additionally, in the budget for 2023, the allocation for smart cities and urban renewal project Amrut Scheme was at Rs 16,000 crore (FY24 Budget Estimate) against Rs 14,100 crore in FY23 BE.
Presenting the budget, Finance Minister Nirmala Sitharam added that the government intends to create an Urban Infrastructure Development Fund on the lines of the Rural Infrastructure Development Fund that will be managed by the National Housing Bank. The government proposed to spend Rs 10,000 crore per year on urban infrastructure development funds.
Listed players in expansion mode
Post-COVID-19, the Indian real estate sector saw several listed real estate developers expand beyond their home turfs. For example, Gurugram-based DLF has entered the Mumbai real estate market, and Mumbai-based Oberoi Realty has announced a land acquisition in Noida. Godrej Properties has also expanded its base in several tier 2 cities of India.
Further, Bengaluru-based Prestige Group, Puravankara, and Brigade Group have entered or have announced their plans to enter the Mumbai real estate market.
Prestige Group and Brigade Group also have plans for Pune, which is an important city from the angle of it being an IT hub and having the highest volumes in sales when it comes to the seven real estate markets in India.
Pankaj Kapoor, managing director of Liases Foras, a non-broking real estate research firm, believes that COVID-19 has helped listed players as there was a price correction and demand picked up. There was optimism and many financial institutions also helped listed players having good balance sheets to expand in markets like Mumbai and Pune, he added.
Residential demand outlook for 2024
Experts said that both prices and volumes continue to remain on an uptrend although sectoral growth has moderated over the last three years.
"We expect a maximum home loan interest rate cut in 2024 through the monetary policies. Thus, the sale volume is expected to increase.
Additionally, we expect property prices to grow in moderation across FY25 with new supply hitting the market. Overall, CY2024 will continue to be an end-user-driven market," Knight Frank’s Rathi added.
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