Elevated housing prices a worry for the realty market: Experts

Bengaluru: Average residential prices between 2019 to the end of September 2024 have seen over 50 per cent rise in India’s top seven cities, as per ANAROCK Research. Analysts and experts told DH that they don’t expect realty prices to moderate in the near future.

However, it is a worry as the elevated prices rises will not be sustainable and the industry is likely to go into correction mode subsequently.

Added to this is the GST Council’s decision to revise the limit for affordable housing and the applicable bracket from Rs 45 lakh per unit to Rs 56 lakh per unit, indicating that the price hike is not limited to the luxury segment alone, though that segment has definitely seen the largest surges.

“The growth of prices has been in the mid to upper end. The luxury housing price rise has been especially phenomenal. The concern is the unabashed price rise in a few of these markets like Mumbai and Gurgaon; a few of these luxury apartments are selling like hotcakes at super premiums,” said Gulam Zia, Executive Director at Knight Frank India.

“The problem is the price rise here has been a bit too much, and that is not sustainable. These prices are unaffordable, meaning that there is very little justification for these prices to reach that kind of a number. Even investment of passion at some point of time has to see an exit value. That is why the scope of further entries has been narrowed down,” he explained.

Analysts remain divided on when prices will moderate. Most expect prices to remain stable over the next few quarters, and some even think this will continue for years. 

“Henceforth, prices are expected to remain stable with no major jump as there is now limited scope for further increase. Even if developers try to increase prices substantially, it will break the current housing demand momentum, ultimately leading to a drop in housing sales,” said Prashant Thakur, Regional Director and Head of Research, ANAROCK Group.

With prices rising significantly in the last one year alone, many of these buyers are gradually going into a wait-and-watch mode, he added.

Since the real estate market is cyclical, after the current boom, there is expected to be a slowdown in the future. Analysts say that there will be a pricing shift then. Conversely, if the current inventory is exhausted and no new supply comes up, then the demand-supply mismatch could again push up up prices.

While the majority of demand is from end users, the price rise has also been accompanied by buyers increasingly looking at housing as an investment. At least 33% of the prospective buyers aim to purchase a property from an investment perspective, according to ANAROCK Group’s Thakur. He said, for the majority of surveyed investors, earning a rental income is the key deciding factor. 

More interest from NRIs

Ravi Shankar Singh, Managing Director, Residential Transactions, Colliers India, cautioned, “Please do not treat real estate as an investment product. It’s not like the stock market. It’s a very illiquid asset.”

“It’s not a trading device. People today are taking it to be like a stock market investment. It’s not like that. You have to keep property for a significant period of time. That is when it will give you money,” Sahil Verma, Chief Operating Officer of broking firm Shray Projects, said.

It is also clear that the affordable housing segment is still seeing a demand-supply mismatch, as it is only civic planning agencies building those. Private developers have all but given up on affordable housing.

As housing prices surge, some caution that affordability for the younger demographic is also strained.

“The new generation will find it very difficult to own an asset. They are not able to afford homes because of the increased prices. They also do not want to go and live in distant places. They want to live in the core Mumbai, core Bengaluru,” said Anand Moorthy, co-founder and Chief Business Officer, Capital Market and Services, Square Yards.