New Delhi: Unfazed by increasing interest rates and property prices, the real estate sector has seen a robust growth in the current year vis-a-vis the last year. The sale of property and launch of new houses in Q2 of FY23 surpassed the pre-pandemic level of Q2 of FY20, according to the Economic Survey 2022-23 tabled in the Parliament.
Housing prices have started firming up after a two-year Covid lull and unsold inventories have come down on the back of rising housing demand. The survey report, however, added that there could be depreciation in prices of property due to a cut in import duties on many construction materials.
The unsold inventory stood at 8.5 lakh at the end of 2022 with 80% of the stocks under various stages of construction. This comes on the back of sustained sales momentum as the sector steadily recovers from the impact of the pandemic, Economic Survey report said.
Going forward, recent government measures, such as the reduction in import duties on steel products, iron ore, and steel intermediaries, will cool off construction costs and help to check the rise in housing prices, the survey said.
It noted that the pandemic brought about a change in individual home buyers’ sentiment in favour of owning a house. With the easing of curbs, there was an increase in interest in the residential housing sector and more so in the readily available and affordable segment. The hybrid work mode, with the privileges of working from anywhere, encouraged first-time home buyers to move away from metros, and this led to pent-up demand in the residential real estate markets of Tier II and III cities, it said.
Improvement in affordability in response to measures taken by the government during the pandemic, such as lower interest rates, reduction in circle rates, and cut in stamp duties on transaction of sale/purchase of immovable property, as well as the extension of the Real Estate Regulation Act (RERA) also played a significant role in the post-pandemic rebound of the real estate sector, it said.
Construction activity, in general, has significantly risen in FY23 as the much-enlarged capital budget (capex) of the central government and its public sector enterprises is rapidly being deployed, the survey said.
Housing price indices vary from city to city
The annual variation in housing price indices (HPI) market price ranged from an increase of 37.7% in Bhubaneshwar to a contraction of 6.5% in Indore in the quarter ended (QE) September 2022 over QE September 2021, the survey noted.
Out of the 50 cities, 43 saw an increase in the index, whereas 7 cities showed a decline annually. All of the eight major metros of the country, viz., Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune, recorded increases in the index on an annual basis.
The annual change in the HPI assessment price varied widely across the cities, ranging from an increase of 20.2 percent in Gandhinagar to a decline of 2.3 percent in Bhiwadi in the QE September 2022 over QE September 2021. Out of the 50 cities, 46 cities registered an increase in the index, whereas 4 cities experienced a decline, on an annual basis. All of the eight major metros of the country witnessed an annual increase in the index, the survey noted.
Ukraine war fueled construction cost
Housing prices have risen due to an increase in construction costs amid the onging Russia-Ukraine war, which hit global supply chains, the survey noted.
The survey report further the geopolitical tensions between Russia and Ukraine have again raised concerns regarding disruption in the global supply chain and its consequent impact on the real estate sector. It has affected the supply chain, resulting in price escalations of steel, cement, finishing materials, imported chemicals, and fuel, thereby increasing the overall construction cost and resulting in a rise in housing prices.
Economic Survey hints upbeat mood in real estate sector
“As per the survey, liquidity provided by the Government through various measures has kept the housing sector buoyant. Also, the overall affordability in the residential real estate sector was high during the post-pandemic period. Accordingly, the sector is witnessing more growth with consistent improvement as evident by new project launches,” said Harpreet Singh, Partner, Indirect Tax, KPMG in India.