Presently, labour rates are experiencing an average annual increase of 6% over the past three years, impacting construction cost by roughly 2% in the housing sector. For representation purpose
Credit: DH file photo
Bengaluru: India Ratings and Research on Tuesday said that residential real estate price growth will decline to 5% in the ongoing financial year (FY25), compared to an estimated 22% at the end of FY24.
The rating agency credited a host of factors, including the underlying base effect, interest rate stability and a strong launch pipeline, for the forecast. It said that the present unsold inventory levels in the premium and luxury housing brackets, which saw strong demand growth in financial year 2023-24, are at their highest in the past five years.
“With most regions witnessing a surge in prices, Ind-Ra expects the pre-sales growth to moderate to 8% to 10% YoY in FY25,” Mahaveer Shankarlal Jain, who is the director for corporate ratings at Ind-Ra, said.
Following discussions with industry players, DH had reported in December that the rally seen in property price growth in 2023 will not be matched this year owing to a narrowing demand-supply gap.
However, property consultancy JLL in its guidance report on Tuesday said that overall construction cost in the country will experience an average 6% increase in calendar year 2024, driven by increased prices of essential construction materials and rising labour costs.
“Presently, labour rates are experiencing an average annual increase of 6% over the past three years, impacting construction cost by roughly 2%,” the report noted.
With prices expected to further increase over FY25, albeit moderately, affordability levels are likely to remain challenging, leading to deferment in purchases, Ind-Ra said. In FY24, developers also responded to the situation by reducing the supply of affordable inventory.
Commercial market
In the commercial segment, IT hubs such as Bengaluru and Pune may witness an uptick in office vacancy levels amid high supply, Ind-Ra said, while maintaining an overall stable outlook, with possibility of slight improvement, across the top eight markets in FY25.
However, the conversion of special economic zones into domestic tariff areas may overwhelm the demand-supply balance, it warned. Renewals, on the other hand, shall not be a challenging factor in FY25 amid improving physical attendance in offices.
Led by flex operators, and the BFSI and engineering sectors, office space absorption is expected to grow 7-8% year-on-year in FY25. Meanwhile, fresh supply will grow between 5%-6% keeping rental growth in the band of 3%-5%.
“Bangalore is likely to continue to lead the Indian commercial real estate micro-markets, with its startup ecosystems and broad economic bases,” Jain said, adding that the Hyderabad and National Capital Region markets may cool down as observed during FY24, following the strong supply and increases in rentals during FY22-23.