The real estate sector has been one of the most significant drivers of economic strength and growth in India. As per the latest data outlook real estate demand is estimated to be around 15-18 million sq. ft by the year 2025. Reportedly, as per the IBEF, luxury home sales in India have advanced by a 130% rate through mid-2023.
In FY23, the value of home sales in India’s residential property market rose to an all-time high of Rs 3.47 lakh crore (US$ 42 billion) which had a remarkable increase to the tune of around 48% over last year’s figures. The number of units sold also increased by 36% to 379,095.
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However, the real estate sector is likely to encounter substantial hurdles in the future as a result of rising property costs, rental rates, and loan payments. As inflation is projected to rise more in the coming years, there is growing concern about how it will impact the real estate industry in 2024.
Before getting into the 2024 predictions, it’s crucial to understand how inflation affects the Indian real estate market.
Inflation and Property Prices:
Inflation has an important influence on property prices. When inflation increases, it also raises the costs of building houses due to higher expenses for materials and labourers. Resulting in the overall cost of a property. Additionally, inflation can impact people’s desire to buy property, as they may choose to delay or avoid making large purchases when they are uncertain about the future. This may result in a reduction of the demand for properties, which can also further fluctuate property prices.
When we look ahead to 2024, the influence of inflation on property prices will depend on mixed factors. One crucial issue will be how the government controls inflation and maintains economic stability. If the government takes significant steps to curb inflation in the Union Budget 2024-25, property prices may stabilise. The middle-income category drives a huge portion of property demand, and inflation has a significant impact on their purchasing power. If inflation remains under control, there may be increased demand for properties, thus raising property prices. However, if inflation continues to rise, people may have less money to buy homes, resulting in a drop in demand. This could result in decreased property prices, providing an excellent chance for purchasers to invest in real estate.
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Rental Rates and Inflation:
In the 2024 real estate forecast, inflation’s impact on rental prices is another key factor to consider. When the cost of living rises, landlords may be forced to raise rents to pay their costs. This makes it difficult for tenants, particularly middle-class families, to afford rental flats.
Furthermore, inflation can boost the cost of maintenance and utilities, which can be passed on to tenants in the form of higher rents. As rental rates rise, landlords may have trouble finding tenants, resulting in decreased demand for rental units.
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Inflation affects rental property investors in both positive and negative ways. On the one hand, they can increase earnings by raising rental rates. However, tenants may struggle to afford the increasing prices, resulting in abandoned rental units.
Loan EMIs and Inflation:
Inflation has a significant impact on the real estate market, increasing the cost of loan repayments. Borrowing money is often more expensive during periods of inflation. This may be a severe concern not just for current homeowners, but also for potential homebuyers because increased EMIs make it more difficult to repay loans or gain mortgage approval. If loan payments rise, consumers may find it more difficult to repay their loans or receive them in the first place. This could also affect the real estate business, as developers and builders may struggle to sell their properties, resulting in fewer new development projects.
Inflationary pressures in the real estate market are expected to influence all sectors, including residential, commercial, and retail. However, certain segments may experience a greater influence than others. For example, premium houses and prime business sites may see a greater price increase, but inexpensive housing and commercial spaces in the suburbs may see a mild increase. This can shift the current prices, especially in suburbs that are closer to tier 2 cities and restabilize the market
The real estate industry in India is likely to grow dramatically in the next few years, but inflation remains a concern. As we predict for 2024, inflation will have a variety of effects on the real estate market, depending on government policies, demand and supply, and overall economic stability. Inflation can raise property prices, rent rates, and loan payments, but the government can make policies to limit the effects. As a buyer or investor, one must stay current on economic trends to make informed real estate investment decisions in the years ahead.
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With the interim Union budget for 2024-25 set to be announced today, real estate players are hoping that the finance minister will provide a boost to the sector with a change in the definition of affordable housing by raising the threshold limit from existing Rs 45 lakh.
Developers would also like to see an increase in the area limit for affordable housing units in terms of space.
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According to a study by property consultancy ANAROCK, the affordable housing category saw a decline in overall sales to approximately 20 percent of the overall pie in 2023 from over 30 percent in 2022. Hence, many developers are expecting the government to deliver a boost for this category.
The revision in the definition of affordable housing has been a long pending demand of real estate developers and homebuyers.
Vihang Sarnaik, Director, Vihang Group said that he expects the finance minister to establish a separate affordable housing index for each Tier-1 and Tier-2 cities with impetus to the housing affordability of the metro cities periphery.
It is crucial to incorporate essential factors such as inflation, land cost, construction cost, approval cost, and labour cost for defining affordability in housing.
“For instance, in the case of Mumbai, where housing costs are notably high, we hope that the Budget will increase the price ceiling of affordable housing from Rs 45 lakhs to Rs 90 lakhs so that the whole affordable scheme benefits reach its intended audience. As per the current affordable housing scheme, the limit is set at Rs 45 lakhs and you will not find a single home in Mumbai in that price bracket,” he said.
Budget 2024: Real estate sector pitches for industry status and lower interest rates
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Sandeep Runwal, President, National Real Estate Development Council (NAREDCO) Maharashtra, voiced similar concerns and said that there is a need to redefine the definition of affordable housing to boost this segment and the demand.
“We propose an increase in the cap from Rs 45 lakh to Rs 1 crore, particularly in metro cities. This change is expected to significantly boost both affordable and mid-segment housing. The industry also anticipates the continuation of incentives for affordable rental housing schemes,” Runwal said.
LIVE Updates from the Budget 2024
Earlier in November 2023, Dinesh Kapila, economic advisor at the Ministry of Housing and Urban Affairs had also said that classifying affordable housing as units up to Rs 45 lakh was unrealistic given the high price of land in cities.
He said that the finance ministry has been sent a proposal to “improve the definition of affordable housing”. Experts say that the price cap should be set at Rs 75 lakh, he added.
Nagaraju Routhu, CEO of Gurugram based Experion Developers, said that developers are optimistic to see a potential positive change in the budget, especially in the affordable housing sector, given that this is a general election year.
“With the hike in property prices over recent years, a thoughtful adjustment of this limit, perhaps to Rs 60-65 lakhs, would create avenues for the expansion and availability of affordable homes. With this adjustment, there could be a significant contribution to making housing more accessible and catering to the needs of a broader segment of the population,” Routhu said.
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The real estate market, a key driver of the country’s economy, has been undergoing rapid evolution and growth in recent years. Fueled by increasing urbanisation and rising incomes, the housing sector has become a significant contributor to India’s economic landscape. With a surge in demand for homes, major builders have made strategic adjustments to pricing, fostering expectations of a positive trajectory for house prices in the coming years.
Anticipated rebound and opportunities amidst evolving market dynamics
Looking ahead to 2024, optimism prevails as the sector is poised to rebound from the challenges encountered in 2023. Analysts anticipate a more favourable market environment, citing the presence of pent-up equity seeking housing opportunities. Whether you’re a first-time buyer or an investor eyeing property expansion, staying abreast of real estate trends is crucial for making well-informed decisions in this dynamic market.
What makes India’s real estate sector an attractive investment option?
The depth of capital in Asian markets, including India, is diversifying, with real estate emerging as a favored sector for increased allocations. India’s position as one of the fastest-growing economies globally, driven by private consumption and capital formation, makes the real estate sector an attractive investment option. Investors are exploring opportunities across various real estate segments, such as office spaces, logistics, private credit, residential properties, and data centres.
Considered a long-term and secure investment by financial experts, the future of the real estate sector appears promising. A report by Concorde outlines a robust Compound Annual Growth Rate (CAGR) of 9.2% for the real estate sector from 2023 to 2028. The year 2024 is expected to mark the next phase in the evolution of real estate, driven by factors such as continued urbanisation, growth in the rental market, and steady appreciation in property prices.
According to experts, the residential real estate market is set to remain within affordable limits, reaching a three-year high in 2024. The JLL Home Purchase Affordability Index indicates that metro cities like Mumbai, Delhi NCR, and Chennai will spearhead this surge in the real estate sector. Furthermore, the expected repo rate cut, ranging between 60-80 basis points, is anticipated to maintain home prices within an affordable range for buyers.
Expert views on sustainable growth in the residential market
For sustainable growth in the residential market, experts emphasise the importance of government prioritisation of affordable housing schemes and incentives for banks to offer lower interest rates, especially for first-time buyers. This approach could lead to organic and sustainable expansion in the residential market, ensuring a balanced and inclusive growth trajectory.
What are the home loan rate projections for 2024?
Looking specifically at the financing aspect, projections for 2024 suggest that home loan rates will likely remain stable, with no substantial impact on residential demand. Instead, the critical factors influencing residential sales in 2024 are expected to be affordability and the income outlook for potential purchasers.
In conclusion, the real estate market is poised for positive developments in 2024, driven by a combination of market dynamics, government initiatives, and investor confidence. With a focus on affordability, sustainable growth, and strategic financial measures, the sector is set to play a pivotal role in India’s economic landscape, offering opportunities for both homebuyers and investors alike.Rishabh Siroya, Founder of Siroya Corp
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