The Indian real estate sector is currently in the midst of a 7-8 year growth cycle. As a result, demand and price momentum is expected to continue, according to brokerage Motilal Oswal.
“While the Nifty Real Estate Index of the National Stock Exchange has doubled in the past one year, the return since January 2022 (two years) is 80%, with pre-sale or Similar to cash flow growth. Therefore, the recent rally is only a catch-up and future growth is not yet reflected,” Motilal Oswal said in the report.
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Despite price increases, affordability improved across markets as income growth outpaced price growth. This should maintain demand and price momentum, the report said.
“Furthermore, a resurgence in demand in the affordable segment, macro tailwinds from rising per capita income and growing demand in cities like Bangalore, National Capital Region and Chennai have pushed the market beyond the peak of the previous cycle. Absorption may increase further,” he added.
Supply in 2023 increased 7% year over year to 350,000 units, slightly exceeding demand and keeping inventory levels under control (17 months of overstock). As a result, realizations increased by 6% year-on-year. Despite price increases, India's top eight cities saw modest improvements in affordability ratios of 100-200 basis points as income growth outpaced price growth and home loan rates remained flat. .
Figures from real estate consultancy Knight Frank show that home sales in the top eight cities will rise 5% year-on-year to 330,000 units in 2023, matching 2013 occupancy rates but down from 2012's peak sales of 360,000 units. This suggests a decline of 9%.
Real estate consultancy Anarock and analytics firm Prop Equity reported that real estate absorption in 2023 exceeded the peak of the previous cycle.
Anarock said absorption in the top seven cities increased by 30% to 470,000 units.
It is estimated to increase by 15-16% to 510,000 units in calendar year 2023 (CY23), according to PropEquity.
Therefore, on an aggregate basis, industry volumes increased by mid-teens in 2023 with price growth of 6%, resulting in healthy value growth of 20%. Organized public companies expect pre-sales to increase 30% year-on-year in 2023-2024, driven by ongoing consolidation.
While housing demand in the top seven cities has surpassed the previous cycle's peak, as shown by Anarock and PropEquity, Motilal Oswal believes that several triggers could lead to further increase in demand. Masu.
First, the affordable segment, which accounts for 29 per cent of total absorption, is the most affected by rising mortgage rates. Lower interest rates will lead to a resurgence in demand for affordable housing. Additionally, the government is expected to provide incentives for affordable housing, which will be an important positive catalyst.
Second, per capita income above $3,500 ($2,400 in AD 23) is an important trigger for increased homeownership, as was seen in China between calendar years 2008 and 2015. Probably.
“These factors could lead to sustained demand growth over the next three to four years. Inventories have not yet increased significantly, but prices have increased by 14 percent in absolute terms over the past two years. In contrast, it has risen between 25 and 70 percent over the past two cycles, indicating that the sector is in the midst of an upcycle. Existing supply-demand balance, low inventory, and affordability. , and we believe that gradual price increases should sustain this momentum for at least three to four years,” Motilal Oswal said in the report.
According to various real estate consultants, 2023 was the best year on record, with home sales volume increasing by 5-10% on the back of continued demand traction. Motilal Oswal expects sales volumes to register similar growth rates and steady 4-6% price increases, adding that sales in top cities could soon increase by 10-15%. Suggests.
“While industry sales are at multi-decade highs, major markets have yet to catch up to historic occupancy rates. Combined, this is likely to contribute to industry growth in the coming years. Publicly traded companies have outperformed the industry since calendar year 2019, given large developers' strong cash flows and investments in building project pipelines. This trend is then expected to continue,” the report said.