There has been a considerable upheaval in the Indian real estate sector during the pandemic and due to the pandemic. When the pandemic struck the world and especially India with an initial lockdown the industry got hit with stoppage of construction work and the buyers were skeptical about their purchases with a drastic drop in buyers’ sentiments. Just after that, the residential real estate sector, sensing the ensuing trouble lowered the prices in the eight major cities of India which bolstered the buyers’ sentiments.
The affordability along with the buyers’ sentiments were even surged with the government’s measures with tax rebates and lowering of the bank interest rates. In the third and fourth quarter of FY 20, a boost in demand was noticed in the residential real estate sector of India which shed some ray of hope to the developers and the stakeholders of the industry.
With that being said and looking at the circumstances the question that arises is whether there can be even more price cuts expected. Whether this is the right time to buy the home or a little more patient waiting would be fruitful from the point of view of the price? To answer these questions, we have to analyze the sector and understand whether there are chances of even more price cuts.
The analysts believe that notwithstanding what the first wave has done to the real estate sector, the impact of the second wave would be even deeper. According to a Reuter’s poll published on May 21, 2021, the impact of the second wave would be even more severe on Indian real estate which would stagnate the growth of prices by subduing the demand and even offsetting the benefits accrued by the real estate sector from the government initiatives like incentives and subsidies. The report predicted an average price rise of just 1.3% on a nation-wide scale.
Another recent research report conducted by QuantEco Research revealed that the impact of the second wave on the economy would be surely severe lowering the buyers’ sentiments to a considerable degree as real estate required large ticket investment. The analysts further state that because of the stress on the demand factor, the rates of the properties might be adversely affected.
The first wave had a considerable impact on the demand graph but the price reduction along with macro-economic efforts was able to boost the demand. Unlike the first wave, argues the market watchers the second wave of the pandemic can disrupt the demand momentum created after the first wave.
A surge in raw material prices
The real estate sector is under real pressure as it’s a price-sensitive buyers’ market and on the other hand there is a hike in prices of raw materials like steel bars, plastic, cement and other materials. Not only is there a hike in the prices of the raw materials the pandemic has brought about a supply shortage too. Estimates say that in the last three months the prices of iron have increased by Rs. 20, 000 per tonne which tantamount to a 50% increase in the rates.
This price increase can add fuel to the fire of the problem faced by the real estate sector as the industry is in no state of increasing prices in such a sensitive market. Looking at the price rise of the raw materials the market watchers opine there can be an increase in prices when the restriction relaxes and this price rise can be observed in the homes sold by the branded companies.
Can a price reduction be expected?
During the pandemic, there has been a gradual rise in prices in the housing markets of Ahmedabad and Hyderabad with a 5% price hike in both the cities. The critics say that the growth of Ahmedabad can be attributed to the already low prices of the city’s real estate. According to various research studies and also a recent poll by Reuters, it is anticipated that there would be a minimal rise in property prices in 2021 and another survey poll conducted in January 2021 predicted that there would be an average price rise of properties by 1.3%. The surveys predict that although there may not be a significant rise in the prices in 2021, a price rise of 4.5% can be expected in 2022. The survey poll also revealed that in 2021 the prices would be steady in Delhi, NCR and Mumbai rather than a price drop.
The real estate market has been plagued by a demand slowdown by the onset of the pandemic which has been keeping the price rise of the properties in check. Along with the demand slowdown in the domestic market, there is an impact of the global economic slowdown too which has happened due to the Pandemic and this would impact the Indian real estate market to an extent where the price rise is nothing but wishful thinking. On the scale of global house price index which tracks the movement of residential prices, India slipped to 54th position among 56 countries showing the weakest price growth on a yearly basis.
To one extent as there are very fewer chances of a price rise, there is a great possibility of the increment of affordability as the Delhi government announced a 20% reduction in the circle rates for all types of properties. The government announced that this temporary reduction would remain till September 30th 2021 and such moves by other state governments would necessarily surge affordability of properties and would boost sales.
Along with this, the banks are also on a spree to reduce the lending rates as SBI already reduced the home loan interest rates to 6.5% from 6.7%. Coupled with all these measures, although the prices may not rise but there is a possibility of reduction which is again restrained due to inflated material costs, but the affordability is bound to increase which would keep the sales ticking.