Indian real estate’s three-legged race

The strength of any country’s housing market usually tells you a lot about the strength of the larger economy. This is because growth in the sector touches so many other adjacent industries like furnishing, interior design, electricals, cement, steel, transportation, retail, and much more.

That is why the dichotomy in the Indian real estate sector’s growth is puzzling many people. While the mid and premium segment continues to grow, the affordable housing segment is on a weak wicket. Any unit below Rs 50 lakh is considered affordable housing, while the mid segment units are usually between Rs 50 lakh to Rs 1 crore, and Rs 1 crore and above is the premium segment.

Case in point: Mumbai’s October home sales were the highest in 11 years, according to Knight Frank. India’s total home sales in 2023 are already above 2022, according to real estate consultancy Colliers. It may end up being 20%-30% higher than 2022 by the end of the year.

Then what’s the dichotomy?

While the demand for housing in the mid and premium segment is sustaining despite rising interest rates over the past 15 months due to repo rate hikes, the affordable housing demand is floundering. That end of the market is usually sensitive to rise in prices and rise in interest rates. So the fall in affordability on both counts has hurt loan disbursals. There is also a rise in NPAs in the affordable housing segment based on the results of some listed affordable housing finance players.

The demand in the mid and premium segments continues to remain robust. Many listed players are seeing terrific booking and sales volumes, despite rise in prices. The average rise in prices in Hyderabad in July-September 2023 was the highest in India at 11%, according to Knight Frank, followed by Kolkata (7%) and Bengaluru (6%).?

The inventory in many cities has reduced in the past few months, but many developers had started investing in new projects when this upcycle started. Some of them like Godrej and Prestige Estates posted blockbuster bookings for many of their projects. Although some of these were in the premium price range, it points to the fact that the industry’s sales growth is being driven by the non-affordable segment.

The Centre proposed interest subvention scheme for affordable housing with an outlay of Rs 60,000 crore is pending Union Cabinet approval. This could give a boost to the segment.

Why you should care

Whether you are a homeowner (prospective or existing), investor or a renter, the real estate sector’s upcycle eventually impacts you. Real estate and infrastructure sectors’ growth is supposed to boost economic activity by creating demand for investment goods. This could nudge the capex cycle into gear and generate sustainable economic growth.

Sustained economic growth could become a virtuous cycle and push income levels up across the board in various sectors and industries. That is why the fate of the housing sector is tracked so closely as a house is one of the largest expenditure outlay that many households make. If people are gung-ho about buying houses, then there is an element of exuberance in their future financial prospects.

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