As stocks hit a low, home prices surge in double-digit

September 4, 2023

Housing inventories across the country have fallen to close to their all-time low levels of around four quarters to sell as demand has outstripped supply, pushing up prices, and this trend is likely to exacerbate as developers usually try to boost sales in the festival season through incentives, freebies, and payment schemes.

On average, housing prices have been growing steadily at around 6-7 per cent every quarter, but the low inventory levels mean that the price rise is now in the high double digits.

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“At any given time, housing sales superseding new supply or evening out is a sign of a healthy market where the new supply gets absorbed quickly. However, if supply gets limited, then it puts pressure on the prices, sometimes causing a speculative rise,” said ANAROCK Group chairman Anuj Puri.

Soaring sales

In the first half of the year, home sales reached a peak of 2.3 lakh units, while launches were at 2.1 lakh, according to ANAROCK Research. A note by Jefferies on the sector showed that demand continued in July and August too. In July, sales in the top seven cities in the country were up over 20 per cent y-o-y, while pricing was up by 10-12 per cent. Preliminary registration data trickling in for August shows that in Mumbai, sales were up 27 per cent y-o-y, while in the National Capital Region, it was up 9 per cent.

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While the resilient pricing is inducing developers to launch more, it is still not enough to catch up with the demand, and the current inventory level is fairly flat compared to a year ago and is “at near all-time low levels of 17 months,” said Jefferies, adding that the double-digit price gains should extend well through FY24.

Inventory levels have been progressively declining from July 2020, when it was at over 35 months, to its current levels. This has been accompanied by a surge in prices when the levels came down to below 20-25 months.

Declining inventories

ANAROCK Research put the inventory level at the end of June at 6.14 lakh units, down 2 per cent y-o-y. Inventories across cities declined 2-9 per cent sequentially, barring Mumbai Metropolitan Region and Pune, where the housing stock saw a slight rise.

The National Capital Region saw the highest annual decline in inventory of 21 per cent with reduced new supply, said Puri. “This reduction in available inventory will definitely put pressure on prices because demand is strong while supply is limited,’ he added.

Analysts said that one of the reasons for the low supply is that in the June quarter, many of the top-listed developers had fewer launches, corresponding to lower sales growth compared to the industry average. For instance, sales by the top 10 listed developers in Q1 of FY24 were up only 14 per cent, compared to the overall market growth of 30 per cent.

For instance, DLF and Oberoi Realty had no new launches in Q1, Brigade Enterprises had just one launch, and Godrej Properties launched only a fraction of its total pipeline for the year.

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The trend could reverse if real estate developers keep to their launch pipeline targets and timelines. “The second half of the year is expected to be stronger on account of a healthy supply pipeline, the approaching festival season, and stabilising mortgage rates,” said Anshuman Magazine, Chairman, CEO, India, Southeast Asia, West Asia, and Africa, CBRE.

Activity has already picked up among developers. For instance, Godrej Properties has launched a 1 million sq ft project in Noida, Prestige Estates has launched a 5 million sq ft project in Bengaluru, DLF will likely launch a project in Gurgaon by the end of the month, and a launch by Oberoi Realty is expected in early October.

Until the new supply comes onto the market, home buyers will have to dig deeper into their pockets.

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