India’s real estate sector is experiencing a robust recovery, marked by increased investment in physical assets, a preference for larger residential spaces, and a growing demand for office areas post-pandemic. The resurgence is widespread, yet the sector faces challenges, particularly a diminishing interest from the lower-income demographics. The government’s role in maintaining this growth trajectory is crucial due to the sector’s significant influence on industries like steel, cement, and transportation.
Recent data indicates a 12 percent year-over-year increase in residential property sales in the September 2023 quarter, with sales surpassing pre-pandemic levels by 135 percent. This uplift signals an end to a prolonged downturn, with the highest sales recorded in six years. Developers are responding to the heightened demand with a 23 percent increase in project launches compared to the previous year. Reports from Knight Frank highlight a reduction in unsold inventory, with the average inventory age dropping to 16.1 quarters from 17.6 quarters the year before. The office space segment also shows a 17 percent uptick, primarily driven by global capability centers, which constitute 44 percent of the demand.
Bank loans have significantly funded the recent homebuying spree, spurred by lower interest rates and accessible credit during the early pandemic phase. The total housing loan value of scheduled commercial banks has seen a remarkable increase, doubling from August 2019 to August 2023. However, the rise in interest rates over the past year has led to a noticeable decline in home purchases by lower and middle-income groups. This trend is particularly evident in the reduced sales of homes priced below ₹50 lakh in the September 2023 quarter, while mid-range and luxury homes continue to attract buyers.
The IT sector, a key contributor to consumer demand in India, is facing a slowdown due to the global economic downturn, affecting hiring and salary increases. This could potentially impact the purchasing power of IT employees, which may reflect in future housing market trends.
To sustain the momentum in the real estate sector, the government could implement several measures. Addressing the housing deficit among the economically weaker sections in urban areas, the government might extend the PMAY (U) deadline and restart the sanctioning of new houses. Reintroducing the credit-linked subsidy scheme could facilitate the financing of smaller homes. Additionally, while tax deductions on home loan interest are available under the old tax regime, they are absent in the new one. The government could explore alternative non-tax incentives to bolster the real estate market’s revival.