Moneycontrol Pro Panorama | What is driving India’s property market?

The property market continues to see brisk sales.

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Hiring in the IT services industry, a large employer of India's white collar workforce, may have hit a soft patch. But the property market shows no signs of getting affected by a setback to a key pocket of demand and continues to see brisk sales. Consider the latest data: total housing sales in the top seven cities increased by 8 percent in January 2024 from the year ago period, shows PropEquity data analysed by Nuvama Institutional Equities. This comes on the back of record sales of 5.36 lakh residential units in 2023.

Sales in 2023 exceeded new launches by 18 percent and as a result inventories have fallen. This trend continued in January 2024. Unsold inventory decreased across major cities last month, barring in Hyderabad. “The inventory levels are at ~12-year low at slightly under 16-months as launches still not able to match with rising sales,” analysts at Jefferies India said in a note.

Rising sales and falling inventories are pushing up prices. Average prices in the National Capital Region (NCR) and Bengaluru increased by a hefty 22–25 percent in January 2024 from the year ago month.

The rise in prices is attracting speculative money. But industry observers are not worried. The end user demand for residential housing continues to rise, driven by urbanisation and steadily expanding working age population.

As per Kotak Institutional Equities, the organised companies are gaining market share. “RERA-driven consolidation is throwing up growth opportunities for organised players,” add analysts at Nuvama. RERA is Real Estate Regulatory Authority, an act passed by the Parliament of India.

Most companies have good project pipelines. This provides a growth runway and is raising investor expectations. Shares of large real estate companies have run up on the stock exchanges and are trading above their five-year average valuations. Some of them --DLF, Sobha and Godrej Properties-- even scaled new 52-week highs in Tuesday's trade.

Even so, investors should keep a tab on demand trends. Continuous rise in prices can hit affordability levels. Indeed, sales volumes in major urban centres are heavily tilted towards premium and luxury segments. Volumes in the affordable housing segment continue to languish, warn experts. Also, the rising demand and sales are attracting new companies into the real estate sector. This can increase supplies and competition as currently seen in Hyderabad.

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