India home prices set to stay above consumer inflation: Property analysts

By Vivek Mishra

BENGALURU (Reuters) - Home prices in India are set to hold above consumer inflation, even though interest rates are expected to stay higher for longer than previously thought, a Reuters poll of property analysts found.

A surge in savings and minimal income disruption to cash-rich home buyers during the pandemic led to a rise in demand that has made the market more resilient to interest rates than initially expected.

The May 16-June 1 poll of 12 property analysts predicted national home prices would reach a median 6.0% this year, a modest upgrade from the 5.5% expected in a March survey.

Forecasts ranged widely, from 1.8% to 20.0%.

Average home prices were expected to rise by 5.5% next year and in 2025, outpacing consumer price inflation forecasts of 5.1% and 4.8% for fiscal years 2023/24 and 2024/25, respectively, in a separate Reuters poll.

"The interest rate cycle is near its end," Arvind Nandan, managing director of research at Savills India, said. "We think prices will continue to remain stable or rise steadily - though not steeply."

The Reserve Bank of India raised the repo rate by 250 basis points in this tightening cycle, modest compared with other major central banks. Rates are set to stay at 6.50% for the rest of 2023 and start falling early next year.

All analysts who answered an additional question said they were bullish about the housing market outlook.

"Demand and supply of affordable housing are reducing, while the luxury and high-end segments are witnessing increased traction. As a result, future developments are likely to increase in these segments which will quickly drive overall home prices northwards," said Anuj Puri, chairman of ANAROCK.

For most home-buyers, affordability is a concern.

Asked about the future of purchasing affordability for first-time home buyers over the coming year, six analysts said it would improve and five said it would worsen.

"Given the expectations of prices showing positive growth momentum and interest rates likely to remain sticky in the near term, we expect that affordability, which had already slightly worsened, is likely to worsen further," said Rohan Sharma, senior director at JLL Research.

(For other stories from the Reuters quarterly housing market polls:)

 

(Reporting by Vivek Mishra; Polling by Veronica Khongwir and Madhumita Gokhale; Editing by Hari Kishan, Ross Finley and Barbara Lewis)