According to an analysis by CARE Ratings, housing prices have increased by just 1.4% in the first three quarters of FY 2021 compared to a GDP growth of 6.7% at a CAGR of 5.6% in the five-year fixed period.
The analysis stated that due to consumer response from demand-side Kovid-19 restrictions and on the supply side, the developers offered promotional discounts to discontinue additional unsold inventory, leading to an increase of only 1.4%.
Due to COVID-19 and higher rates of migration, non-metro cities saw relatively higher increases in prices, with Ahmedabad, Lucknow, Kanpur and Kochi seeing more than 8% growth.
Prices have come down over GDP during this period. In fact, adjusting for population, the increase in per capita income would be similar to housing prices.
Regarding inflation, the CPI for the housing component increased from 116.1 in FY15 to 152.2 in FY15, a CAGR of 5.6% which is in line with the compound growth rate of HPI. However, the CAGR in the headline CPI was 4.2% for the period, indicating that housing prices were higher than normal inflation which was more or less within the RBI target of 4%.
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have house prices gone up despite the epidemic?
The decline in interest rates and the focus on home-loans, along with banks’ focus on retail lending, supported a spurt in consumer demand as the prospect of a home loan increased.
However, the increase in HPI has come down from FY18 which can be attributed to the decrease in demand and the creation of inventory in the market.
In addition, affordable housing measures announced by the government may indirectly affect this moderation in the housing price index by reducing the prices of housing prices.
It should be noted here that this was the time when many retail borrowers, including home loans, went for a moratorium on loan terms (41% for the entire system including banks and NBFCs in August) due to challenging circumstances.
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Prices in metros vs non-metro cities
The Mumbai Metropolitan Region (MMR) is believed to be one of the most expensive regions in India in terms of property prices. However, it was second only to Chennai (8.4%) in terms of price rise and almost equal to Bengaluru (6.2%). Delhi recorded the lowest growth rate in prices at 2.3%. This was from CAGR for FYI to FY20 (Q4) for metro cities in FY15.
The growth rate for city-wise HPI in Q3FY21 on Q4FY20 for cities like Bangalore was 9.9% as the city was relatively more open during the pond and IT-related companies continued to perform well in terms of job creation. Even with work from a domestic standard setting. This was one of the reasons for the increase in prices. Other cities that recorded positive growth include Delhi (1.1%), Ahmedabad (1.9%) and Lucknow (0.7%).
Except non-metro cities, Jaipur (4.2%), all other non-metro cities recorded growth rates of between 8.1% and 8.7%. The analysis said growth of over 8% could possibly be due to structural reforms, growth of local businesses and increased consumer demand in the Tier 2 and 3 markets on the back of affordable housing initiatives by the government, among other factors.
Non-metro cities saw relatively higher increases in prices, with Ahmedabad, Lucknow, Kanpur and Kochi seeing a growth of over 8%.
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Hence there has been an increase in the demand for housing in these centers which have also become major business centers in view of the high cost in metro cities.
In addition, there is a greater demand for housing for migration of people from rural cities to these cities, which is also reflected in these prices.
Indian real estate market prices vs. global prices
The report said that the Indian market is outperforming its global counterparts by FY15.
Globally, residential property prices rose at a CAGR of 4.6% and emerging economies registered a growth of 4.8%, while advanced economies registered a growth of 4.4%.
Among individual countries, Germany recorded the highest growth rate of 6.4%, followed by 5.6% in India and 5.3% and 5% in China and the United States, respectively.
The way forward
In FY 2011, house prices remained more or less limited due to contraction in demand due to the widespread outbreak of covid-19.
In Q34Y21, HPI registered a de-increase in the range of -2.3% to -1% in 6 of the 10 major cities compared with the index in Q4FY20. The decline in consumer demand resulted in excess selling inventory in the market.
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In addition, developers began offering huge promotional discounts to revive demand. Such stamp duty rate reductions, coupled with a fall in government tariffs, led to a fall in prices.
Under the second wave of the virus, the region that was already facing headwinds will now be pushed back and forth as uncertainty looms. While working from home will increase the demand for homes and push for affordable housing will also help, excess supply will face challenges. In addition, Tier-2 cities can be prioritized and removed from metros.
