By Milounee Purohit
BENGALURU (Reuters) – Average home prices in India are set to rise 7% this year and next, driven by purchases of luxury properties, according to analysts polled by Reuters who said the supply of affordable homes would continue to lag demand.
Barely dented by the Reserve Bank of India’s 2-1/2 percentage points of interest rate rises from May 2022 to February 2023, the housing market has powered along with Asia’s No. 3 economy, the fastest growing amongst major peers.
Home prices rose 4.3% in 2023, the fastest since 2018, according to Reuters calculations based on the RBI’s House Price Index.
However, sharp home price rises add to the challenges of weaker segments in the economy that struggle with stagnant wages and poverty.
Poll medians from a Feb. 16- March 1 survey of 13 property market experts showed average home prices in India were forecast to rise 7.0% this year and next, little changed from 6.8% and 7.5% predicted in November.
“We are expecting an uptick in demand for the luxury segment largely due to high-net-worth investors,” said Aniket Dani, Director-Research at CRISIL Market Intelligence and Analytics.
“Developers are channelling their focus towards launching more premium projects, contributing to the challenges faced by the affordable segment.”
In answer to a question on the gap between demand for affordable homes and the supply of them over the coming 2-3 years, five said it would remain the same, four said widen and two said narrow.
Despite the RBI’s efforts to curb inflation with higher rates, a post-pandemic buying frenzy among high-income earners pushed home prices up.
But expectations the central bank will cut interest rates this year should improve affordability.
A majority of strategists, eight of 12, said purchasing affordability for first-time homebuyers over the coming year will improve. Four said it will worsen.
“Interest rates are…likely to drop in 2024, given the RBI has successfully kept inflation levels in check and intends to shift its stance toward supporting growth. This will impact affordability and demand favourably as homebuyers will be eligible for larger loans,” said Vivek Rathi, national director of research at Knight Frank India.
The survey predicted home prices in the large urban centres of Mumbai, Delhi and Bengaluru rising 6.0%, 5.0% and 9.0% this year, respectively.
(Reporting by Milounee Purohit; Polling by Susobhan Sarkar and Anant Chandak; Editing by Ross Finley and Ros Russell)
By Jayshree P Upadhyay
(Reuters) – India’s central bank and market regulator are considering exemptions to recently tightened rules for bank investments in alternate investment funds (AIFs) due to their unintended consequences, three sources with direct knowledge of the matter said.
Last month, the Reserve Bank of India (RBI) ruled that banks and non-bank lenders cannot invest in AIFs with holdings in the banks’ current or recent borrowers, to avoid cases of “evergreening” bad loans, and asked lenders to sell existing investments within a month, or provision against them.
However, the industry says the new norms would stymie growth. These rules impact about $8-10 billion worth of investments, according to the Indian Venture and Alternate Capital Association (IVCA), a lobby body for AIFs.
“The inadvertent impact of the RBI circular is that banks and non-bank finance lenders will stay away from investing in AIFs fearing that they may run afoul of the regulations,” said Srini Srinivasan, managing director, Kotak Investment Advisors, one of India’s largest alternate asset managers.
Hence, the regulators are considering suitable exemptions to some of the valid concerns, said the sources, who declined to be identified as they are not authorised to speak to the media.
Reuters learnt of two such exemptions being sought by lenders and funds. The first is for AIFs set up specifically to invest in distressed assets, two of the sources said.
For example, two large funds run by State Bank of India — one that invests in stressed and stalled residential projects and one in small enterprises — are impacted as they have direct or indirect exposure to companies that are existing borrowers of SBI, said a source.
“It is under active consideration whether certain categories of funds such as the ones investing in distressed companies should be exempted,” one source said.
Emails sent to SBI, RBI and the market regulator Securities and Exchange Board of India (SEBI) were not answered.
Banks have also asked that they should be given more time to exit such investments or allowed to stagger provisions they need to make, two sources said.
“The 30-day deadline to either provide for or exit the investments is unrealistic as the haircuts are going as high as 80% of the net asset value due to the regulatory diktat,” said Siddarth Pai, co-chair of IVCA’s regulatory affairs committee.
A haircut in finance parlance is the difference between the fair value of an asset and how a lender can recover via a sale.
Pai said the industry is looking for at least one year to exit.
(This story has been refiled to correct the date)
(Reporting by Jayshree P Upadhyay; Editing by Sohini Goswami)