Property Prices To Increase By 10-15 Per Cent In 2022
The rising cost of construction materials as well as the impending demand-supply scenario in real estate following the ongoing Omicron crisis, may result in price hikes in the coming quarters. Read on for industry insiders’ perspectives
For the last few years, property prices in India have remained more or less stable due to the prevailing macro-economic situation. As home-buyers tightened their purse strings, developers began offering irresistible offers to attract home-buyers and inspire sales. During this time, the real estate community also walked the tightrope in battling several challenges beginning with demonetisation, GST implementation, funding crisis among housing finance companies (HFCs), and the Covid-19 pandemic being the biggest hurdle among them all. As a result, property prices barely moved over the last few years. In fact, according to a report by Knight Frank India, which indexed the affordability of homes in major cities across the globe, the total carpet area one can purchase within $1 million has only increased in the last few years.
However, with renewed demand for safety and financial stability, real estate pundits predict a rise in prices as the pandemic enters the third year.
Increase in cost of construction Developers recently floated the idea that property prices may soon rise because of rising cost of construction raw materials and transportation fuel. These rising costs have been impacting building profitability and overall project viability over the last six months.
Harsh Vardhan Patodia, president, CREDAI National, elaborates, “Increasing input costs have put a lot of pressure on developers since the last few months and they are likely to pass this on to home-buyers in the form of a 10-15 per cent price increase. This will be unavoidable if the supply chain gets impacted due to the third wave.”
The recent Consumer Price Index (CPI) is also a point of contention. It states that India’s benchmark inflation rate is at 5.59 per cent y-o-y for December 2021.
Pritam Chivukula, secretary, CREDAI-MCHI, explains, “There is a possibility of a hike in key rates by the RBI to check inflation, which can also drive up interest rates for home financing. Property prices may go up by five-10 per cent in the short-term as developers may not be able to absorb further escalation in prices of raw materials like steel and cement.”
Pandemic casts a gloomy shadow The rising cases of Omicron along with the looming threat of another lockdown is a cause of worry for many and may drive property prices upwards. “The impact of the new variant on the sector depends on the severity and whether a lockdown is eventually imposed or not. As of now, we don’t see any threat to the residential or commercial sector. However, the situation will be clearer in the next few weeks,” says Chivukula.
“Construction activities are not being halted at the moment, but the emphasis is on following proper protocols at project sites,” says Rohit Poddar, managing director of a realty firm.
Further elaborating on the impact of the Omicron variant on buyer sentiment, Niranjan Hiranandani, vice-chairman, NAREDCO National, says, “The impact can be seen in terms of reduced site visits by home-buyers. People are not risking exposure to Omicron and are staying home. This has impacted sales and marketing.”
However, the developer community had worked on their digital presence after the first wave and are currently reaping its benefits in the form of almost completely virtual home-hunting and buying processes.
Home-buying momentum to continue With several project launches in the pipeline; developers currently expect a 15-20 per cent sales growth in the current year. “If the active cases continue to rise, there will be some disruption, but overall, the sector anticipates healthy growth,” says Chivukula.
“The last five quarters have seen positive momentum in home sales starting from Q3 2020. While home loan rates, prices and even ownership attitudes remain stable, the main challenge at present is the health infrastructure getting overwhelmed due to rising cases and consequent lockdown. The restriction in movement could lead to challenges in completing the home buying process and therefore, deferment of purchase decisions. However, we do not see that as a great impediment as the pent-up demand for homes remains strong and will bounce back (should there be a moderate slowdown) to take advantage of the positive buying environment,” concludes Gulam Zia, senior executive director, Knight Frank India.
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