<p>The Indian residential real estate market is currently riding the wave of an unprecedented boom, as highlighted in the Anarock India annual report for 2022. We also hear about developer firms being mobbed in the NCR region during launches and skyrocketing rentals in Mumbai, or Bengaluru. To understand what’s behind the rally is important for home-owners and tenants alike.</p><p><strong>How did we get here?</strong></p>.Canada bans most foreigners from buying homes.<p>In the last quarter, 1.15 lakh residential properties were sold in major urban centres marking an increase by a third over the same period last year. Notwithstanding media coverage of the rush in NCR, just over half the transactions were from Mumbai Metropolitan Region and Pune though that was largely on account of superior transaction volumes. Mumbai region and Pune also remain leading regions. As COVID moratoriums and subsidies have ended, disposable income has grown on the back of strong economic growth (leaving aside oil and short-term inflation spike). With troubles firmly in the rear-view mirror, the upmarket segment, which is relatively less dependent on financing or government incentives, has witnessed robust sales as well as additional housing supply.</p><p><strong>Factors driving real estate demand</strong></p><p>As the adage goes, for real estate, it’s location location and location and some neighbourhoods are more desirable than the others. There will always be lopsided want for homes in some locations and not so much in others. There are two main factors which drive these: distance from business hubs and proximity to schools. As city traffic grows and infrastructure initiatives, like metro rail, do not keep pace, these localities experience both increased interest and more development. For example, in Bangalore Sarjapur Road is viewed as being close to the Outer Ring Road tech parks and therefore tends to be favoured. Conversely, aggregation of schools on State Highway 35 drives fresh residential requirements in the Gunjur-Varthur belt being midway between the schools and the business areas of Whitefield. This has nearly doubled the builder quoted rates in the past 5-6 years. Likewise, rentals too have nearly doubled since the lockdown days. Buyers possibly will therefore need to stretch budgets for proximity to schools / offices as tenants bear annual hikes in rents.</p><p><strong>Near term outlook</strong></p><p>For landlords, diverse localities can have diverse price growth and indeed different returns. But as a typical large project, of say 1000-plus apartments, takes anywhere from 5-7 years to complete and the pandemic years having significantly reduced construction activity, developers are still playing catch up. This is the big reason we might continue to observe a rush of buyers for new projects launched in those preferred localities. It is therefore also likely we will see current price trends persisting for a few more quarters till latent demand is met, there’s a steady stream of fresh launches and housing units’ inventory available for sale reaches better levels.</p><p>Even as supply is steadily increased (to satisfy existing need), what could slow down prices (or even construction) is economic growth faltering (however unlikely) or any further sharp increase in interest rates. At that time those buyers with ready cash may find better deals. Until then, residential real estate may just continue to be a sellers’ market.</p><p><em>(The author is Managing Partner, Aryzen Capital Advisors)</em></p>
<p>The Indian residential real estate market is currently riding the wave of an unprecedented boom, as highlighted in the Anarock India annual report for 2022. We also hear about developer firms being mobbed in the NCR region during launches and skyrocketing rentals in Mumbai, or Bengaluru. To understand what’s behind the rally is important for home-owners and tenants alike.</p><p><strong>How did we get here?</strong></p>.Canada bans most foreigners from buying homes.<p>In the last quarter, 1.15 lakh residential properties were sold in major urban centres marking an increase by a third over the same period last year. Notwithstanding media coverage of the rush in NCR, just over half the transactions were from Mumbai Metropolitan Region and Pune though that was largely on account of superior transaction volumes. Mumbai region and Pune also remain leading regions. As COVID moratoriums and subsidies have ended, disposable income has grown on the back of strong economic growth (leaving aside oil and short-term inflation spike). With troubles firmly in the rear-view mirror, the upmarket segment, which is relatively less dependent on financing or government incentives, has witnessed robust sales as well as additional housing supply.</p><p><strong>Factors driving real estate demand</strong></p><p>As the adage goes, for real estate, it’s location location and location and some neighbourhoods are more desirable than the others. There will always be lopsided want for homes in some locations and not so much in others. There are two main factors which drive these: distance from business hubs and proximity to schools. As city traffic grows and infrastructure initiatives, like metro rail, do not keep pace, these localities experience both increased interest and more development. For example, in Bangalore Sarjapur Road is viewed as being close to the Outer Ring Road tech parks and therefore tends to be favoured. Conversely, aggregation of schools on State Highway 35 drives fresh residential requirements in the Gunjur-Varthur belt being midway between the schools and the business areas of Whitefield. This has nearly doubled the builder quoted rates in the past 5-6 years. Likewise, rentals too have nearly doubled since the lockdown days. Buyers possibly will therefore need to stretch budgets for proximity to schools / offices as tenants bear annual hikes in rents.</p><p><strong>Near term outlook</strong></p><p>For landlords, diverse localities can have diverse price growth and indeed different returns. But as a typical large project, of say 1000-plus apartments, takes anywhere from 5-7 years to complete and the pandemic years having significantly reduced construction activity, developers are still playing catch up. This is the big reason we might continue to observe a rush of buyers for new projects launched in those preferred localities. It is therefore also likely we will see current price trends persisting for a few more quarters till latent demand is met, there’s a steady stream of fresh launches and housing units’ inventory available for sale reaches better levels.</p><p>Even as supply is steadily increased (to satisfy existing need), what could slow down prices (or even construction) is economic growth faltering (however unlikely) or any further sharp increase in interest rates. At that time those buyers with ready cash may find better deals. Until then, residential real estate may just continue to be a sellers’ market.</p><p><em>(The author is Managing Partner, Aryzen Capital Advisors)</em></p>