In a landscape where economic growth is robust yet unevenly distributed, India’s housing market stands at a pivotal juncture. Property experts, surveyed by Reuters, anticipate a continued upward trajectory in average home prices, driven primarily by the burgeoning demand for luxury residences. However, this growth story comes with a caveat – a looming scarcity of affordable housing options.
The Demand Dynamics
Homeownership in India, a nation of over 1.4 billion people, is increasingly shaped by a select group, predominantly immune to fluctuations in interest rates. Economic prosperity, particularly in Asia’s third-largest economy, continues to propel the housing market forward. Nevertheless, economists point out a troubling trend: the benefits of this growth appear to disproportionately favor the affluent.
The survey conducted from May 10-29, comprising insights from 15 property market experts, foresees a modest yet consistent uptick in average home prices, approximating a 6% increase annually for the next couple of years. This projection, albeit marginally lower than a previous estimate of 7% in March, underscores the market’s resilience amidst evolving economic dynamics. Notably, house prices experienced a 4.3% ascent in 2023, as per Reuters calculations based on the Reserve Bank of India’s House Price Index.
Ankita Sood, director and head of research at REA India, elucidates on the driving forces behind this trend. “Property prices are expected to maintain an upward trajectory…because of consistent demand and limited ready supply,” she remarks, attributing the surge to the burgeoning demand from investors and high-income individuals, particularly in the luxury segment.
Affordability Conundrum
As prices ascend, the specter of affordability looms large, particularly for first-time buyers grappling with the burden of escalating down payments. The Reserve Bank of India (RBI), having hiked interest rates by 250 basis points between May 2022 and February 2023 to curb inflation, is anticipated to initiate rate cuts in the next quarter. However, a stable rupee and a robust economy temper expectations, signaling a prolonged period of relatively high mortgage rates.
Experts remain divided on the trajectory of affordability for first-time purchasers. While some foresee an improvement buoyed by rising income levels, others caution against a potential decline amid a “flattening” job market. Atif Khan of CBRE anticipates a positive trajectory, particularly in tier I cities like Mumbai and Delhi, whereas Ajay Sharma of Colliers International expresses concerns over the stability of the job market.
The Supply Side Challenge
Despite governmental initiatives aimed at bolstering affordable housing, challenges persist in meeting the burgeoning demand. Rising land prices coupled with developer preferences for higher ticket-size segments exacerbate the shortfall in affordable housing options. Rohan Sharma, director at JLL Research, underscores these challenges, elucidating the factors constraining the supply of affordable homes.
In conclusion, while India’s housing market basks in the glow of economic prosperity, the specter of affordability casts a long shadow. As prices march upwards propelled by demand from the affluent, the plight of aspiring homeowners seeking affordable abodes remains unresolved. Addressing this disparity necessitates concerted efforts from policymakers, developers, and stakeholders alike to ensure equitable access to housing opportunities amidst the evolving economic landscape.
