With 3.29 lakh housing units sold, India’s residential property sector had a boom year in 2023. And on the office side, Knight Frank officials categorically say India is now the biggest growing office realty market in the world. As India’s real estate booms at ten-year highs, one area is conspicuous by its decline.
The affordable housing segment.
Consider this: For the first time in history, premium segment sales shot past that of mid-segment over the past six months. A whopping 72 per cent of housing units (villas, floors, apartments) sold during this period were those above Rs 50 lakh.
Splitting it further, as much as 37 per cent of all housing sales were for units costing more Rs 1 crore.
“Characterised by a shift towards more expensive properties, the residential market continues its onward march to achieve another watershed year in 2023,” said Shishir Baijal, chairman and managing director of Knight Frank India, which came up with the findings as part of its 'India Real Estate Report' on Wednesday.
“We can see some signs of distress in the affordable segment which saw reduced sales volumes,” Baijal admitted.
The drop in housing sales is a stark indicator of the K-shaped growth trajectory seen in the Indian economy since the pandemic hit, followed by a slew of economic policy ‘restructuring’ which favoured domestic infrastructure development and investment that helped businesses to capitalise on the large-scale capital spending by the government.
However, this evidently seems to have left the lower middle classes and rural populace in a not-so-enviable situation, with decreasing purchasing power. “The combined impact of rising property prices, increased home loan rates, and the disproportionately adverse effects of the pandemic in this category continue to dampen demand,” according to Knight Frank, which pointed out how affordable housing constituted more than half of the entire residential market, at 54 per cent, back in 2018, compared to just 30 per cent right now.
Despite affordable housing being a core of Prime Minister Narendra Modi’s vision and being talked about in many of Finance Minister Nirmala Sitharaman’s budget provisions in the past few years, the trickle-down effect is sorely lacking post-pandemic (There are talks of a special package for affordable housing to be announced before the polls, perhaps as part of the interim budget on February 1.)
One direct reason, experts point out, is inflation forcing the hand of regulators to increase interest rates, thus adversely making home loans even more difficult to afford. Repo rates were increased by 250 basis points by the Reserve Bank between May 2022 and February 2023.
According to one estimate, this has increased the percentage of EMI to average income from 43 per cent to 55 per cent, making buying that dream home more distant than ever. “Increased down payment then becomes a challenge,” pointed out a Knight Frank official.
But for developers, property dealers, and those who can afford it, the spiraling cost is no detriment to snapping up that luxury apartment or villa. Sales of premium properties grew by as much as 46 per cent in the NCR region alone, with Mumbai and NCR accounting for half of the total premium housing units sold last year.
