Housing prices firm up after a two-year covid lull

The Economic Survey of India has reported that the country's housing market has witnessed a recovery in the current fiscal year due to the release of pent-up demand, despite rising interest rates on home loans and appreciation in property prices. According to the survey, which was tabled in Parliament, housing sales have increased and the demand for housing loans has picked up, leading to a decline in unsold housing inventories and an increase in housing prices.

The survey attributes the rise in housing prices to an increase in construction costs due to the Russia-Ukraine conflict, which affected the global supply chain of key building materials like steel. The Wholesale Price Index for cement, lime, and plaster has increased from 127.1 in December 2021 to 137.6 in December 2022, indicating a rise in construction costs. However, the report notes that the recent reduction in import duties on steel products, iron ore, and steel intermediaries will help to lower construction costs and check the rise in housing prices.

Vaccinations have also played a crucial role in lifting the housing market, as they have allowed migrant workers to return to cities to work in construction sites, contributing to a significant decline in inventory overhang. According to PropTiger data, inventory overhang fell to 33 months in the third quarter of FY23 from 42 months last year.

Apart from housing, construction activity in general has significantly risen in FY23, due to the much-enlarged capital budget of the central government and its public sector enterprises. The real estate sector has witnessed resilient growth in the current year, with housing sales and the launch of new houses surpassing the pre-pandemic levels in Q2 of FY23.

The COVID-19 pandemic had a negative impact on the real estate sector, leading to project delays, deferred big-ticket purchases, stagnant property prices, and scarce funding for developers. The work-from-home model also impacted the demand for office space. However, the pandemic also brought about a change in home buyers' sentiment, with a growing interest in the residential housing sector, particularly in Tier II and III cities, where pent-up demand has been released.

Improvements in affordability, due to measures such as lower interest rates, reductions in circle rates, and cuts in stamp duties, as well as the extension of the Real Estate Regulation Act, have also played a significant role in the post-pandemic rebound of the realty sector. Housing sales and the launch of new houses in Q2 of FY23 have surpassed the pre-pandemic levels, and the unsold inventory stood at 8.5 lakh at the end of 2022, with 80% of the stocks under various stages of construction.

The real estate sector has witnessed resilient growth in the current year, despite rising interest rates on home loans and an increase in property prices, and the recovery is expected to continue. The release of pent-up demand, along with the reduction in import duties and the return of migrant workers, has led to an increase in housing sales and the launch of new houses, and a decline in unsold housing inventories.

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Housing prices firm up after a two-year covid lull

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