The post-covid residential sales momentum is set to get a further boost in this festive season, notwithstanding headwinds in the form of rising interest rates and increase in home prices. Here are the Top 10 trends that will help drive festive home demand. Vinod Behl
The optimism regarding jump in home demand and sales during the festive season stems from the fact that residential sales have grown by 60% to 1,58,705 units in the first half of 2022 across 8 top cities. This surge in home sales has happened despite RBI driven hikes in interest rates.
One dominant trend/factor responsible for sharp pick-up in-home sales is the growing preference of home seekers for home buying to home renting. This is largely because the covid pandemic brought to the fore the significance of privacy, health, safety, and wellness. Home seekers in bustling IT/ITeS hubs of Mumbai and Bengaluru have been especially opting for home buying due to the high cost of rental living. Prospective home buyers in Delhi-NCR, Hyderabad have also shown increased preference for home ownership as rent EMIs are higher than home loan EMIs.
Despite recent hikes in home loan rates and increase in property prices, home loan rates are still in the single digit and quite affordable. The home purchase affordability has seen a steady improvement over the past few years due to the low interest rate regime. Though the recent interest rate hikes have increased the home loan EMI load, yet it has been somewhat compensated by rise in disposable income. The continuation of home loan interest subsidy of up to Rs 2.67 lakh on affordable homes for first time home buyers along with a mere 1% GST on affordable homes is helping to maintain house purchase affordability. The discounts and deals in the festive season is an icing on the cake.
The ready-to-move (RTM) as a preferred choice of home buyers, has come to majorly push home sales. Though due to spurt in home sales during the past several months, RTM inventory has gone down significantly, yet there is still some good RTM inventory available across different products, price points and geographies to attract home buyers. There are two clear and distinct advantages of buying RTM homes - there is no development risk and transaction cost is quite low due to zero GST. According to a Housing.com-Naredco survey, done at the time of the festive season, 58% homebuyers which are end-users, are looking for RTM properties. But as per Anarock survey the gap between RTM and under-construction homes is narrowing down with 25% opting for under-construction properties as against 30% preferring RTM homes.
Growing Disposable Income
The improving economic and employment scenario coupled with salary hikes, bodes well for festive season home buying. Despite all the headwinds, India is outperforming all other major economies with its growth for FY 2023 projected at 7-7.5%. The pace of job creation at 8.5% in FY 22 more than compensates for job losses in the previous year. The IT sector is leading in organised sector hiring. The scenario on the salary front also looks promising. With the receding pandemic, India Inc is likely to give an average salary hike of 8.13% in 2022, as per TeamLease report. For CY 2023, global professional service firm Aon has forecasted a double-digit pay hike in 2023 amid improvement in business environment and economic recovery. This will amount to increased disposable income, which will push home sales.
Rise in Luxury Housing
Though affordable housing continues to drive home sales with affordable and mid-segment housing having 70% share of the overall home sales, the rising sales of luxury housing hold promise for the festive season. According to Anarock, luxury home sales doubled in H1 2022 in the top 7 cities of NCR-Delhi, MMR, Bengaluru, Pune, Chennai, Kolkata and Hyderabad. NRIs and HNIs are driving luxury homes sales. The continuous depreciation of rupee has made home buying an attractive proposition for NRIs. Post-covid requirement for spacious, luxury homes high on automation and wellness features will see traction in festive home sales. The year 2022 is tipped to be a momentous year for luxury housing. And with India Sotheby’s International survey saying that 67% HNIs plan to buy luxury homes in 2022, is surely a good news for festive home sales.
Rising New Launches
The significant rise in the number of new launches is going to play a big role in pushing home sales during the festive season. New residential launches, according to Square Yard report, rose 170% YoY in Q2 2022. As per REA- backed PropTiger.com report, new launches of residential real estate projects in top 8 residential markets in Q2 2022 was highest in 7 years, registering 28% QoQ increase. Prospective home buyers have been increasingly going in for the newly launched housing projects as developers are designing these projects keeping in mind the post-covid requirements and preferences of customers. Moreover, as RERA is showing its teeth after assuming greater maturity, home buyers’ confidence in under-construction residential properties has gone up, especially in the properties of reputed developers wth sound execution capabilities and good track record of timely and quality delivery.
Positive Consumer Sentiment
The consumer sentiment has not gone down despite rise in interest rates and increase in housing prices. In fact, the consolidation of the real estate sector and post key reforms like RERA, Benami Property Act , GST, the sector is today more organised, professional and transparent. There is a clean up in the sector, with the phasing out of unscrupulous developers. This has made the sector more consumer-friendly, in turn raising the trust level of home buyers. This is clearly reflected in the Knight Frank’s Real Estate Sentiment Index. In Q2 20022, it safely remains in the positive zone. Similarly, the Future Sentiment Index score also remains positive despite domestic and global economic headwinds. This positive consumer sentiment is quite favourable for festive home sales.
Online Home Buying
The rising popularity of online home buying platforms especially among millennials is a home buying booster. According to Housing.com, digital marketing platforms have not only become the mainstay, not only to search for a home but also to close deals online or in just one or two site visits. As per their survey, as many as 30% of home seekers are willing to buy a home completely online or just after site visit. As such platforms play a vital role in simplifying home buying, besides providing access to allied services, they will be playing an important role in boosting festive home sales.
Rising Home Prices
Over the past year, there has been 5-12% increase in home prices largely due to hike in input costs. Though prices of key building materials like steel and cement have come down, yet they are still higher than the 2021 festive period. Developers are still contemplating price hike of about 10% to compensate for higher input costs and to save their margins. They may not do it now due to the fear of upsetting home sales momentum, but they go for it after festive season. Moreover, the impending increases in interest rates will further make homes pricier for the home seekers in the coming months. As such they may well take a plunge now, making most of the good deals available in the festive season.
Investors’ Preference For Real Estate
In the wake of domestic and global headwinds, in today’s turbulent environment, real estate is still a best investment. The stock market is too unstable and in a bearish mode. FD interest rates are still not high. Unlike equity market which is more turbulent, property market is more or less stable and much more bullish. Investment in residential realty besides assuring long-term appreciation, offers return on investment. Moreover, being a physical asset, it is a hedge against future financial uncertainties. It remains the top choice for investment purposes.
According to Housing.com-Naredco survey, 47% prospective investors prefer to invest in real estate, the highest compared to stock market (21%), fixed deposits (16%) and gold (15%). Anarock report also confirms that preference for real estate over other asset classes is growing. As many as 59% prospective investors prefer to invest in real estate now against 54% in H1 2021. Buying homes with capital gains for other investment asset classes like stock market and mutual funds is the top priority for millennials and Gen X with 56% and 38% respectively.