India's Housing Prices Remain Under Pressure As Demand For Luxury Housing Surges

India is expected to see a steady rise in average home prices over the next few years owing to increased demand for luxury housing. This surge is largely being driven by the country's top of the pyramid segments, according to property experts polled by Reuters.

However, this trend is likely to lead to a shortage of affordable homes. Despite a population exceeding 1.4 billion, home purchases are predominantly influenced by a smaller segment of the population, which remain largely unaffected by rising interest rates.

India is likely experiencing a surge in its economic growth path, quite evidently surpassing its major counterparts. This is in turn fueling the housing demand in the nation.

However, economists argue that the benefits of this growth are increasingly favoring the rich. According to a recent survey of 15 property market experts conducted from May 10 to 29, average home prices are projected to increase by nearly 6 per cent this year. The projections are slightly lower than the earlier 7 per cent figure forecasted in a March poll.

In 2023, house prices witnessed a 4.3 per cent rise, as per Reuters calculations based on the Reserve Bank of India's House Price Index. "Property prices are expected to maintain an upward trajectory...because of consistent demand and limited ready supply," Ankita Sood, director and head of research at REA India told Reuters. "The demand for high-value properties from investors and high-income individuals fuels this upward trend."

She also mentioned that the luxury segment contributed nearly 15-16 per cent of total home sales before the pandemic. But since then, it has surged to around 28 per cent.

This continued increase in housing prices will further bring in difficulties to the table for first-time buyers.

Between May 2022 and February 2023, RBI had hiked interest rates by 250 basis points to counter inflation. However, the central bank is now expected to reduce rates in the next quarter.

But as the nation's economy continues to grow coupled with a stable rupee value, any action by the RBI is unlikely on the table

And, this could result in higher mortgage rates, adding pressure on first-time homebuyers.