India’s wobbling housing market to regain its feet next year

August 26, 2021

India’s wobbly housing market will find its footing next year, boosted by a recovery from the pandemic and easy monetary policy, according to property analysts in a Reuters poll who were split on what that would mean for affordability.

The August 11-24 poll predicted house prices would grow on average of 2.5 per cent nationwide this year, an upgrade from next to nothing, 0.75 per cent, expected in a survey three months ago.

But that forecast was significantly more modest than expectations in similar Reuters polls for most major housing markets, which are already up in double digits this year.

Average Indian house prices were forecast to rise 4.5 per cent next year and 5.5 per cent in 2023, outstripping consumer price inflation by then, partly because raw material costs for builders are due to keep rising.

“The trend of demand remaining buoyant can be attributed to several factors … sustained low interest rates, an overall improvement in the job market, resumed economic activity … and an increasing desire to own physical assets during times of unprecedented uncertainty,” said Anuj Puri, Chairman at ANAROCK Property Consultants.

Covid crisis

“With the vaccination drive gaining significant momentum and the spread of Covid-19 under better control for now, 2023 will very likely emerge as the new peak year,” he said.

The Indian real estate industry has taken a big hit during the Covid-19 pandemic, which has killed nearly 4,50,000 people and left millions jobless, as it also triggered a huge migration of workers, many from construction projects.

Thousands of such projects were stalled and once-booming housing market activity in Asia’s third-largest economy slowed significantly.

If the latest forecasts for Indian house price rises are realised, it could put pressure on home buyers at a time when many are struggling to find jobs, given the economy has still not recovered to its pre-Covid-19 level.

Analysts were split, however, on what would happen to affordability over the coming years.

Seven of 13 analysts who replied to a separate question said affordability would improve over the next two to three years, but almost as many said it would stay the same or worsen.

“Housing affordability may suffer as a combined result of increased costs of construction being transferred to the consumer, lower vacancy levels and increase in interest rates,”said Ramesh Nair, CEO-India at Colliers.

“Similarly, any disruptions and downward movements in economic recovery owing to a third wave of Covid-19 are also likely to affect housing demand and supply.”

A spread in new coronavirus variants, a slowdown in economic activity and higher interest rates were the biggest downside risks to the outlook, according to respondents in the poll.

Despite retail inflation running above its medium-term target mid-point for about two years, the Reserve Bank of India has opted to support economic growth through low rates after cumulative cuts of 115 basis points to its key repo rate to 4.0 per cent since the pandemic started.

A separate Reuters poll last month showed the RBI would make two 25 basis-point hikes next fiscal year, taking it to 4.5 per cent.

Leave a Comment