Residential Realty on a Festive High

Having reconciled to prevailing high interest rates, home buyers are relieved with RBI’s latest credit policy extending the long pause , keeping interest rates unchanged and stable . This bodes well for real estate, especially residential realty in the festive quarter.

RBI’s actively disinflationary monetary policy has  boosted the sentiment of home buyers, investors and developers alike as it will give a further push to housing sales momentum, during the festive season.

Housing sales have been at an all time high in Q3 of 2023 , registering a YoY increase of 36%.   The significant drop of 11% in unsold housing stock in Tier 1 cities in Q3 2023 spells good times as developers are strategically taking to reduction of older unsold inventory by calibrating new launches. Amidst record sales by real estate companies, S&P Realty Index has hit 15-year high . Realty stocks rose on the expectation of further rise in housing sales during the festive season.

There are a number of positive indicators, for real estate growth. Quarterly household savings are on rise and  RBI’s Consumer Confidence Index  is on a 4-year high on the back of better   economic situation, improved business confidence and declining unemployment. Investment confidence in real estate is high. Today, more than 60% investors prefer investing in real estate. Institutional investments in residential property rose 47% to USD 274.6 million in Q3 CY 2023 from USD 187million in the year ago period. It is not just investors, end-users are also driving residential realty. As many as 67% prospective property buyers want to buy homes for personal use.

Notwithstanding  these positive developments, there are some concerns as well. Disposable income is declining due to inflation.  An H1 2023 Anarock Consumer Sentiment  Survey has revealed that inflation has adversely impacted the disposable income of 66% prospective home buyers. The worsening geo-political situation and renewed spurt in oil prices has downside risks with regard to RBI’s efforts to ease CPI inflation  below 4% in the next fiscal.

Despite these probable challenges, the upcoming polls in some states in November this year and the impending general election next year may well prove to be a boon for real estate, particularly housing. Because of political expediency of polls, we may see interest rate cuts in January-March quarter of 2024. Deutsche  Bank has expressed possibility of start of rate cut cycle from April 2024 while Nomura has forecasted 100 bps rate cut in 2024, starting from April next. Further, the Modi government has already announced that it will launch a 5 year interest subsidy scheme on affordable housing  loans . Considering that outstanding housing loans registered 37% increase in July 2023, this may well prove to be a booster dose for residential realty.

As things stand  today, the continuously evolving residential real estate scenario holds promise for investors, home buyers and developers alike for the festive quarter and beyond amidst all-time high levels of supply and absorption.

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