Home Prices In India To Witness A Spike Again Amidst higher Loan Rates: Report

Bengaluru: The prices of houses in India are set to rise this year at a pace not seen in half a decade, according to a Reuters poll of property analysts who warned that higher interest rates will also have an adverse effect on affordability factor, especially for first-time buyers. Unlike other world markets, where the demand for property accelerated during pandemic as households scrambled to buy more living space, India’s property market relatively remained quiet due to lack of demand.

According to the report, those markets are now cooling. However, there will be a release of pent-up demand in India, as most employees are returning to workplaces amid improving vaccination rates and fewer COVID-19 cases.

This has stirred the India’s housing market along with a return of large institutional investors, reported Reuters. The prices of homes in India are expected to increase 7.5 per cent this year, the fastest growth in five years, according to a Reuters poll of 13 property analysts conducted in May, an upgrade from 5.0 per cent expected in a March poll. Average house prices were forecast to rise 6.0 per cent next year and in 2024.

The forecasts came despite expectations for sharp rise of interest rates after the Reserve Bank of India surprised markets with a 40 basis point repo rate hike to 4.40 per cent earlier this month, and hinted more are coming soon.

Over 60 per cent of respondents in Reuters’ poll, eight of 13, said affordability for first-time homebuyers would worsen over the next two years. Input costs on basic materials have gone up significantly over the past few months globally because of the pandemic-related supply chain disruptions, made worse by Russia’s invasion of Ukraine in February.

There is scant reason to expect this trend to reverse any time soon, which means developers who have been absorbing these costs are now passing these on to buyers. This will also contribute to house price rises, Reuters reported quoting analysts.

Expensive house prices have led many would-be first-time homeowners to rent instead. But rents too are expected to become more expensive, according to a majority of respondents.

The latest Reuters poll further showed house prices in India’s two most populous cities –Mumbai and Delhi, including its surrounding National Capital Region–will rise between 4 per cent and 5 per cent this year and next. However, house prices in Bengaluru and Chennai, where analysts said homes were fairly valued, were forecast to rise 5.5 per cent-6.5 per cent over the course of the next two years.