Residential Realty Sparkles Through 2022; Glory March To Continue In 2023

Not many expected India’s real estate to be where it is now, as 2022 draws to a close. Not many could have imagined that the sector would bounce back in such a short span of time after being battered by the combined effects of the coronavirus pandemic and ongoing geo-political tensions starting 2020. 

However, data says it all. 

Even as the growth indicators for the entire whole sector showed tremendous progress, the performance of residential realty is being doubly lauded because of the resilience it continues to show even though housing affordability is no more at its peak in India. 

Year-end reports by stakeholders portray an interesting picture of resilient growth and emerging new trends that challenge the established notions about home ownership in India. 

While housing sales are registering record highs amid a dip in unsold stock, the pandemic-induced behavioural changes in homebuyer mindset are keeping the demand for homes robust. This is reflected through sales numbers defying the average price growth and interest rate hike by lenders. 

Through the course of 2022, average housing prices in prime residential markets showed double-digit growth due to an increase in cost of raw materials amid rising cost of borrowing. As developers gradually transferred their burden on buyers—during the pandemic-caused slow down period, they had to bear the shock solely to boost buyer spirit—banks also launched into increasing lending rates. As the RBI effectuated a cumulative 225 basis points since May 2022, home loans today have become a lot costlier than they were at the start of the year. 

Amid the rising monetary pressure, home sales continued to show growth across all quarters, hitting a peak during the festive season, as reflected in various reports by the industry. In fact, India’s 7 prime residential markets recorded the highest sale numbers during the first half of the current financial year (H1FY23) when compared to the past 10 years. 

Interestingly, it is not the affordable housing but the premium residential segment that is driving this growth from the forefront. 

As the definition of homeownership and buyer expectations underwent a phenomenal change in the post-pandemic world, the mid-premium/luxury segment took the lead in driving growth, claiming a lion’s share in sales as well as new supply numbers, data show.   

Aspirations of homeowners have gone much higher, moved beyond habitation or living spaces, now it's a space that allows work, fitness, kids areas and recreation.  

As per our group company's recent consumer sentiment survey, proximity to healthcare is the topmost priority while shortlisting a property, followed by access to open and recreational spaces. Day-care centres, closeness to offices and food and entertainment centres are other amenities respectively that homebuyers look for while deciding on buying a house. Buyers are willing to pay a premium to have all those things. 

Another factor that is driving the demand for this segment is increased NRI interest. As the strengthening of some of the foreign currencies against the Indian rupee gave NRIs greater purchasing power, they are seen flocking back home for real estate investment. While doing so, the premium segment is the obvious choice. 

Little wonder then that many Grade-A developers in the country saw their entire new projects getting sold out on the initial days of the launch in 2022—a trend that is likely to continue in 2023 in which the importance of branded developers' segment is expected to remain buoyant. 

As India’s real estate loses flab to stay in better shape and working state, the number of developers in the country is also likely to reduce significantly in 2023 with the survival of the fittest theory gaining further ground. 

We expect growth momentum across benchmarks to continue in the new year based on the demand factor. 

If 2022 was a year that established residential real estate as the sector to watch out for, 2023 will support it further with better economic prospects and purchasing power. 

(The author is Group CFO, Housing.com & PropTiger.com)