India house prices on track for steady rises, affordability to worsen

Home prices in India are set to rise steadily in single digit percentages over the coming years along with economic growth, according to a Reuters poll of property analysts who expect affordability for first-time buyers to worsen.

Following a relatively modest 250 basis points of interest rate rises from the Reserve Bank of India to 6.50 per cent, expectations of a resilient economy have underpinned property market strength, along with relentless demand for housing.

Average home prices were expected to rise 7.0 per cent nationally this year and next, according to the Aug. 14-31 Reuters poll of 12 property analysts, up from 6.0 per cent and 5.5 per cent in a June poll.

 

The outlook was more upbeat and stable compared with companion polls of property markets in developed economies, where house prices are expected to fall or stagnate after surging as much as 50 per cent during the COVID-19 pandemic.

There was no such panic buying of property in India during the past three years, with modest rises of 2-3 per cent annually leaving more room for house prices to climb.

"Multiple factors are driving the real estate market in India: a healthy economy, market optimism, higher estimated GDP, economic diversification...(and) inflation is under control, which is adding to renewed optimism," noted Ankit Kansal, managing director of 360 Realtors.

While July consumer price inflation was running well above the top end of the RBI's 2-6 per cent tolerance range, it is expected to ease back over coming months as food price inflation subsides. The RBI is set to hold rates until next year, with a modest 25 basis point reduction due by Q1 FY 2024/25, a separate Reuters poll showed.

While demand for housing was never a problem in a country of 1.4 billion people, the most populous in the world, lack of supply, especially of affordable housing, remains a challenge. India shares this in common with most developed economy markets.

A strong 64 per cent majority of respondents, seven of 11, who answered an additional question said affordability for first-time homebuyers would worsen over the coming year.

"There is a visible demand outstripping supply and this will dent the overall affordability," added 360 Realtors' Kansal.

That is likely to push more people to rent, which is also forecast to get more expensive. All 12 respondents who answered a separate question said average rents for the rest of the year will rise, including one who said significantly.

"With employees returning to offices, there has been a significant surge in demand and rental rates...(and) given that rents have already increased significantly, we will see a moderate increase," noted Anuj Puri, chairman of ANAROCK.