House prices have started to firm up after a two-year COVID lull and unsold inventory has fallen on rising demand, the economic survey said on Jan. 31, as it anticipated lower house prices. following a reduction in import duties on many building materials.

India’s residential market has seen a recovery this fiscal year on pent-up demand with an increase in home sales despite headwinds such as rising interest rates on home loans and appreciating house prices, according to the inquiry that was tabled in Parliament.

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The release of “pent-up demand” was reflected in the housing market, as demand for home loans picked up, the Survey notes.

“As a result, housing inventories have shrunk, prices are firming up, and new housing construction is accelerating, which has spurred countless backward and forward linkages that the construction industry is known to have,” indicates the document.

The Russian-Ukrainian conflict has had an impact on prices

House prices rose due to an increase in construction costs amid the Russian-Ukrainian war that hit the global supply chain, the survey found.

The Russian-Ukrainian conflict has affected the supply chain, driving up the prices of key construction materials like steel, thereby increasing the overall cost of construction and pushing up housing prices, he said. added.

The wholesale price index for cement, lime and plaster increased from 127.1 in December 2021 to 137.6 in December 2022, indicating a slight increase in the cost of construction inputs.

“Going forward, recent government measures, such as the reduction of import duties on steel products, iron ore and steel intermediaries, will calm the cost of construction and help to control rising house prices,” the report said.

Return of migrant workers due to vaccination coverage

The survey paper noted that vaccinations have made it easier for migrant workers to return to cities to work on construction sites, with the rebound in consumption spilling over into the housing market. This is evident in the housing market witnessing a significant decline in excess inventory.

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Citing data from housing brokerage PropTiger, the survey said excess inventory – which refers to the estimated time period developers are likely to take to sell unsold inventory, over the current sales velocity basis – fell to 33 months in the third quarter of FY’23 from 42 months last year.

The universalization of vaccination coverage plays an important role in reviving the housing market because, without it, migrant labor would not have been able to return to build new housing.

Resilient real estate growth

Aside from housing, construction activity, in general, increased significantly in FY23 as the much-increased capital budget (capex) of the central government and its public sector enterprises is rapidly deployed.

Elaborating on the state of the real estate sector, the survey said that “the real estate sector has shown resilient growth over the current year, with home sales and new home launches outpacing the second quarter of the year. fiscal 23 the pre-pandemic level of the second quarter of fiscal 20.”

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He pointed out that the onset of the COVID pandemic accentuated a slowdown in all economic spaces, and the real estate sector was no different.

Project delays, postponement of expensive purchases, stagnating property prices and scarcity of finance for developers have led to a slowdown in demand, according to the survey, adding that the situation was further aggravated by the lockdown and the migration of labor involved in the sector to their natives.

The work-from-home model has impacted business demand for office space.

“The pandemic has, however, caused a shift in the sentiment of single-detached home buyers in favor of owning a home. With the easing of restrictions, there has been an increase in interest in the residential housing sector and more so for the readily available and affordable segment.

“Hybrid working with the privileges of working from anywhere has encouraged first-time home buyers to move away from conventional metros, leading to pent-up demand in Tier II city residential real estate markets and III,” the Inquiry said.

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Improved affordability in response to measures taken by the government during the pandemic, such as lowering interest rates, reducing circle rates and reducing stamp duty on property sale/purchase transactions and the extension of the Real Estate Regulation Act (RERA) also played an important role in the post-pandemic rebound of the real estate sector.

Despite current headwinds, such as rising interest rates on home loans and an increase in house prices, the real estate sector has shown resilient growth in the current year, he said. underline.

Home sales and new home launches in the second quarter of FY23 surpassed the pre-pandemic level of the second quarter of FY20. Unsold inventory stood at ₹8.5 lakh at the end of 2022, with 80% of inventory at various stages of construction.

“This was driven by sustained sales momentum as the industry gradually recovers from the impact of the pandemic,” the survey said.