Delaying residential property purchase will only increase acquisition cost

Waiting for interest rates to soften is also not advisable, warn experts

After two years of robust price growth, experts expect housing prices to rise at a moderate pace in 2024. Most are of the view that prices may rise 5-10 per cent on average across the top seven-eight cities. Some micro markets with high demand but low supply of quality housing may see faster growth. 

Demand and price drivers

Economic growth:  India’s growth did not falter amid turbulence in the developed world. The Reserve Bank of India (RBI) expects the economy to grow at 7 per cent in the financial year 2023-24. Says Prashant Thakur, regional director & head–research, ANAROCK Group: “The Indian economy remained resilient even during the pandemic. Its outlook continues to remain bullish.” He believes strong growth will have a positive rub-off effect on home sales.

Stable interest rates:

After the 250-basis-point hike in the current cycle, the RBI has kept the repo rate steady. “Rate cuts are expected in the latter half of 2024. That will improve buyers’ affordability and cushion the moderate price increase that is likely,” says Vivek Rathi, director research, Knight Frank India.

Rising input costs

Input costs, including land and labour, have increased significantly since the pandemic. Says Vikas Wadhawan, group chief financial officer, Housing.com: “Compliance costs related to RERA and GST have also risen for developers.” Amid strong demand, developers have been hiking prices to protect their margins.

Prices playing catch-up:

The current bout of price rise is occurring after a prolonged downturn between 2013 and 2020. “It is only in 2022 and 2023 that substantial price movement happened,” says Wadhawan. Hence, prices have considerable catching up to do.

Reasonable affordability:

A recent note from Jeffries says that affordability for housing remains close to the best levels in two decades.

Says Vimal Nadar, senior director and head of research, Colliers India: “The mix of steady income growth and interest rates, and prices driven by end-user demand should lead to an improvement in affordability.” Any decline in home loan rates in 2024 will lead to further improvement.

Infra developments:

A massive ramp-up in infrastructure activity has occurred across the top cities. “This has improved connectivity between the peripheral and the central parts of cities. Continuing infrastructure development will provide a fillip to prices even in the future,” says Nadar.

Positive buyer sentiment:

The pandemic provided a fillip to the desire for home ownership, with people wanting bigger and better houses. Wadhawan says people desire housing where they have access to amenities, health care facilities, and social infrastructure, and this is leading to a movement from old-style housing into new-age condominiums. This trend is expected to continue in 2024.
 

A few deterrents

2024 is an election year. People expect a majority government to be returned to power. “If this does not materialise, it may dent sentiment across markets, including real estate,” says Wadhawan.

The extent of price hikes by developers will also have an impact. Says Rathi: “Sales momentum could be hit if developers go for large price increases.” Wadhawan worries that the return of speculation, as witnessed between 2010 and 2012, could hurt end-user demand.

Supply-side factors

Currently, the supply of ready-to-move-in inventory has shrunk. Overall supply, however, improved in 2023 with launches picking up. “The positive aspect today is that new supply now comes mostly from Grade A developers who complete their projects on time, boosting buyer confidence,” says Thakur.

End the fence-sitting

Those looking to buy a house for self-use should not procrastinate. “Prices are only going to head north. Any delay will only lead to escalation in acquisition cost,” says Thakur. Waiting for interest rates to soften may not be advisable. “Over a 20-year loan tenure, there will be several upward and downward interest rate movements,” says Wadhawan. 

He also warns against over-leveraging to buy a property.  Those looking to circumvent construction risk should opt for a ready-to-move-in property. Those who go for an under-development property should opt for large, listed developers, preferably ones with a reputation for timely delivery even during market downturns.