Despite Increased Rates, Property Prices In India Are Expected To Rise Fastest In Five Years.

Despite Increased Rates, Property Prices In India Are Expected To Rise Fastest In Five Years.

According to a Reuter's poll of property analysts, Indian house prices are projected to rise at a rate not seen in half a decade this year, but increased lending rates will constrain affordability, especially for first-time buyers. In comparison to other foreign markets that soared higher as families hurried to buy extra living space, India's property market remained relatively quiet during the epidemic due to a lack of demand. Those markets are now beginning to cool.

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However, as most workers return to work with improved vaccination rates & fewer COVID19 instances, India's property market has sparked, as has the return of huge institutional investors.

According to a May 11-27 Reuter’s survey of 13 property analysts, home prices are predicted to rise 7.5 percent countrywide this year, the strongest gain in five years, up from 5.0 percent expected in a March poll. The average house price is expected to grow 6.0 percent next year and 6.0 percent in 2024.

Those projections come amid market expectations for considerably higher interest rates after Reserve Bank of India startled markets earlier this month by raising the repo rate by 40 basis points to 4.40 percent and hinting that more hikes are on the way.

"We are entering a phase of price increase, driven in the short-to-medium term by growing input prices, and in the medium-to-long term by high demand and the presence of significant companies backed by institutional money," says the report.

"The window of opportunity for homeowners to enter the market at present affordable (levels) may close over the next 2-3 quarters," Sharma said, noting that further rate hikes are on the way.

Eight out of thirteen respondents to a follow-up question in the study believed that affordability for first-time homeowners would deteriorate in the following two years.

House prices are so high that many would-be first-time homeowners are opting to rent instead. However, according to the majority of respondents, rents will also rise in price.

According to Vivek Rathi, research director at Knight Frank, every one percentage point increase in a home loan interest rate reduces affordability by more than 7%.

If rates raise to 6% or higher, Knight Frank, Colliers International, JLL Research, Liases Foras, and TruBoard Partners all predict a severe slowdown in housing activity.

At the same time, global input costs for basic materials have risen dramatically in recent months as a result of pandemic-related supply chain disruptions, which have been exacerbated by Russia's invasion of Ukraine in February.

There is little reason to believe that this trend will change anytime soon, which means those developers who previously absorbed these costs are now passing them on to purchasers. According to economists, this will also contribute to rising property prices.

"Improving demand and rising inflationary tendencies in fundamental construction raw materials such as cement, steel, and labour are the primary reasons that are likely to push property prices northward," says the report.

According to a recent Reuter’s survey, property prices in India's two most populous cities, Mumbai and Delhi, as well as the surrounding National Capital Region, would climb by 4% to 5% this year and next.

House prices in Bengaluru & Chennai, on the other hand, are expected to rise by 5.5 percent to 6.5 percent over the next two years, according to economists.

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