India home prices to outstrip inflation, driven by high end of market: Poll

Home prices in India will rise faster than consumer inflation next year, according to a Reuters poll of property analysts who mostly said growth would be driven by higher earners snapping up newly-built luxury residences in cities.

Backed by broad optimism about the fastest-growing major economy, India's housing market barely suffered a scratch from the Reserve Bank of India's 2.5 percentage points of interest rate rises from May 2022 through February this year.

Average home prices were forecast to rise 6.8% this year and next, poll medians from a Nov. 16-30 survey of 12 property market experts showed, more than double the just over 3% increase in 2022 according to Reuters calculations based on the RBI's House Price Index.

 

While those expectations are mostly the same as three months ago, they are higher than the 5.5% and 5.0% predicted at the start of this year.

If realised, home price inflation will outstrip the increase in consumer prices for the first time in five years. Retail inflation was forecast to average 5.4% and 4.8% this fiscal year and next in a separate Reuters survey.

"Rising input costs and the sector's transition away from the affordable segment towards the high-end and luxury segments in many markets are likely to drive prices," said Anuj Puri, chairman at ANAROCK Property Consultants, who had the highest forecasts for price appreciation next year.

"The continuation of a low-interest rate regime is expected to be favourable and to stoke housing demand in the country."

The RBI's campaign to raise interest rates was one of the more modest among large economies, with the repo rate now sitting at 6.50%, low by historical standards.

The survey predicted home prices in large urban centres Mumbai, Delhi and Bengaluru rising 6.0%, 7.0% and 7.0% next year, respectively.

Asked what will happen to the supply of affordable homes over the coming 2-3 years, respondents were nearly split, with six saying it would improve and five saying it would worsen.

Among the six who said affordable housing supply would improve, four said it would not be enough to keep up with demand, underscoring the challenge for millions of middle and low-income families in purchasing a home.

"Homebuyers in the affordable segment were most exposed to the income uncertainties brought by the pandemic and are still recovering from its aftermath, unlike their more affluent counterparts who are fueling the ongoing uptrend in sales," said Vivek Rathi, director of research at Knight Frank.

Surging rental costs are making accommodation less affordable for swathes of people who can't afford to buy.

Rents have risen as much as one-third during the first nine months of 2023 in the seven biggest cities, led by IT hub Bengaluru, according to a recent ANAROCK report.

"Bengaluru rents are unrealistic now, landlords have become greedy and are quoting any price that comes to their minds. Almost everyone is back to working from the office which has pushed up demand and has made renting even more painful," said Punit Pansari, 28, who works at a large investment bank in the city.

"Even if I were to consider buying...It's impossible to buy a house when prices are at the levels they're at right now."

With inflation outstripping wage growth since the pandemic began, households have started dipping into savings to make ends meet, making it harder for most people to buy a home.

Still, when asked about the proportion of home ownership to renters over the coming five years, 10 of 11 property analysts said it would increase.