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India home prices set to stay above inflation

Tan KW
Publish date: Tue, 06 Jun 2023, 10:20 AM
Tan KW
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BENGALURU: Home prices in India are set to hold above consumer inflation, even though interest rates are expected to stay higher for longer than previously thought, a Reuters poll of property analysts shows.

A surge in savings and minimal income disruption to cash-rich home buyers during the pandemic led to a rise in demand that has made the market more resilient to interest rates than initially expected.

The May 16 to June 1 poll of 12 property analysts predicted national home prices would reach a median of 6% this year, a modest upgrade from the 5.5% expected in a March survey. Forecasts ranged widely, from 1.8% to 20.0%.

In a separate Reuters poll, average home prices were expected to rise by 5.5% next year and in 2025, outpacing consumer price inflation forecasts of 5.1% and 4.8% for financial years 2023 and 24, and 2024 and 25, respectively.

“The interest rate cycle is nearing its end,” Arvind Nandan, managing director of research at Savills India, said. “We think prices will continue to remain stable or rise steadily, though not steeply.”

The Reserve Bank of India raised the repo rate by 250 basis points in this tightening cycle, which is modest compared with other major central banks. Rates are set to stay at 6.50% for the rest of 2023 and start falling early next year.

All analysts who answered an additional question said they were bullish about the housing market outlook.

“Demand and supply of affordable housing are reducing, while the luxury and high-end segments are witnessing increased traction.

“As a result, future developments are likely to increase in these segments, which will quickly drive overall home prices northward,” said Anuj Puri, chairman of ANAROCK.

For most homebuyers, affordability is a concern.

Asked about the future of affordability for first-time home buyers over the coming year, six analysts said it would improve and five said it would worsen.

 - Reuters

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