Housing demand outlook 2023: Interest rates, global spillovers to play a key role

• The positive momentum in the real estate sector can hold on till the first quarter of 2023 say experts.
  
• From the second quarter onwards, demand will be determined by interest rates, say experts.
  
• The property rates could further shoot by 8% at least next year, due to rising input costs.

India’s real estate market, which has been buoyant since the Covid-19 pandemic, is expected to continue with its growth momentum in the first quarter of 2023, according to experts.

Few experts are willing to make predictions beyond the first three months of the next year, due to uncertainty. They believe that an after-effect of global economic slowdown might have a role to play in the property purchase decisions of Indians.

“There is a possibility of a recession in major global markets including the US and India cannot be decoupled from it. There could be some repercussions in the Indian market by way of layoffs which in turn may slow down the residential demand, if at all,” Anuj Puri, Chairman – Anarock Group, told Business Insider India.

Moreover, in December, the Reserve Bank of India (RBI) raised base interest rates for the fifth time in seven months – taking it to 6.25%. Consequently, banks are expected to pass on the hiked interest rates to the consumers – increasing the cost of home ownership.

Added to that, analysts say that the burden of home loans will be higher as many consumers have exhausted the option of increasing home loan tenures without impacting their EMIs – in the last four interest rate hikes.

The direction of repo rate hikes will guide the housing property demand in 2023, and experts say that there could be more such hikes ahead.

“A lot will also depend on how the home loan interest rates pan out over the next year. While so far, the impact of the rate hikes has been minimal but if the rates rise further, it may go on to impact residential sales,” Puri added.

New launches may remain muted

According to Puri, new launches across the country overall may remain muted in the coming year. “We may see muted new launches in the new year as many developers would rather wait and watch how the global and Indian markets pan out over the year and if all goes well then we may see new launches increase in the second half of 2023,” Puri said.

However, new launches in the Jan-Sept period of 2022 surpassed full-year readings of 2019 with approximately 2.65 lakh units launched in the nine-months period, according to Anarock data. MMR, Hyderabad, Pune have been ruling the charts for the last two quarters in terms of new launches.

Property rates to rise in 2023

That’s just one side of the coin. Hurt by low demand, many developers have not been increasing property rates for the last few years. But input costs have started hurting construction companies and the overall property rates increased by 5-7% in 2022.

Next year, the real estate price hikes will be steeper at around 8% at least next year, according to Puri. This however might not affect demand as much, a few developers feel. Younger generation wants to own a home instead of renting – and this mindset change will aid real estate companies.

“We have seen housing prices rise by 5-8% in 2022 but property sales remained robust as real estate became a favorite asset class among potential homebuyers. This momentum is likely to continue next year as developers are wary about the positive home buying sentiment and consumer’s goal for financial security,” Rahul Purohit, national sales head, Square Yards, told Business Insider India.

Price increases, developers say, have little effect on intent to own homes as they have proven to be the best asset class for investment as compared to gold and equities. “Property price corrections won’t deter affordable home buying plans as consumers have full confidence in real estate as the best asset class,” Purohit added.

Property demand is expected to be high across tier 1 cities, according to Square Yards. Reopening of offices, and increased business activity will guide residential demand in Mumbai, Delhi, Noida, Bangalore, Hyderabad, Gurgaon and Chennai.

Demand is also expected to be high in Ahmedabad, Lucknow, Kochi, Indore, Agra, Varanasi, Gwalior etc. due to the massive infrastructural growth seen in these cities.

Hiring in the real estate industry increased 10% in November on both month-on-month and year-on-year, according to foundit (formerly known as Monster) Insights Tracker (FIT) – indicating that the sector anticipates better times ahead.

The luxury of growth

The growing wealth of Indians and increased number of HNI or high networth individuals is another factor that’s fuelling the demand for luxury homes.

Several reports suggest that the luxury house segment has acquired a lion’s share in overall home sales numbers in the year 2022. According to a recent survey conducted by India Sotheby’s International Realty, a larger number of HNIs are proposing to buy luxury property in the next two years.

“Various real estate consultants cited that sales of luxury apartments witnessed significant growth month on month during the year. The Mumbai Metropolitan Region accounted for more than half of these sales,” Ram Raheja, managing director at S Raheja Realty, told Business Insider India.

Raheja further added, “Enabled by a much higher purchasing power to the steep rupee fall — the Indian currency has breached the 82-mark against the US dollar — NRIs are also viewing this as a great opportunity to build bigger and better assets back home.”

Apart from celebrities like Janhvi Kapoor and Madhuri Dixit and many more, startup founders and stakeholders too are people keen on the luxury housing market.

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