2022: The year when realty proved it stands strong against the test of time

Economies, globally, have not yet recovered from the Covid-19 setback and signs of recession are visible. The war between Ukraine and Russia has worsened the financial recovery. However, for the Indian realty market, 2022 had been completely different. Despite the global pandemic, inflation, geo-political risk and supply chain disruptions, the residential real estate sector has bounced back strongly. Here are some of the big challenges that the Indian realty market strongly stood against during 2022.

Global downturn, inflation and job losses impacted demand

“While the global economic narrative is a dampener and impacts sentiments, residential demand in India is more structural. This, coupled with affordability and a pandemic-induced shift in customer requirements/mindset, has led to this strong performance in 2022. Over the last 6-month period, interest rates have increased by 2.25%; however, the absolute level (sub 9%) remains moderate and significantly below the previous cycle peak. The sector/customers have absorbed these hikes with limited impact on volumes. We do expect some moderation in volumes over the next year if the rates go up from the current levels,” says Sahil Shah, director at Certus Capital and Earnnest.me.

Experts believe that most job losses are happening in the developed economies and the Indian economy is creating more jobs. The World Bank recently revised its 2022-23 forecast for the Indian GDP from 6.5% to 6.9%. This indicates that Indian economic growth seems to be delinked from the turmoil of the developed economies.

Continuous hike in input cost 

Inflationary pressures and elevated commodity prices have significantly increased developers’ input costs. However, despite strong volumes in 2022, developers have only moderately increased sale prices; by and large, to cover input cost increases. This means that affordability continues to be near peak levels, keeping the demand robust.

Maintaining affordability without compromising the quality for various categories of buyers

“The developers have, so far, focussed on volumes vs. increased profitability (i.e., higher prices). This has ensured moderate price increases (to cover cost escalations). Furthermore, the market has consolidated towards a smaller set of performing developers. This leads to increased efficiencies, both in design and procurement, keeping the cost pressures in check. The residential sector has recently come out of a 5-6 year down cycle. Given the fundamental setup of the sector, i.e., near peak affordability and the structural nature of demand and pandemic-induced change in needs, we expect the upcycle to continue over the next 2-3 years,” added Shah.

The property sector, today, is in much better shape as compared to a decade ago. The reforms, while initially painful, have led to a consolidation in favour of the performing developers. The non-serious, fringe players are, by and large, out of the market.

What to expect in 2023?

The demand surge for housing in the Indian real estate sector, despite uncertainties, looming global recession and rising interest rates, indicates that there is a genuine interest in housing and the momentum is expected to continue in 2023.

“We have every reason to believe that the performance of realty in the New Year is going to be rock-steady and robust, especially with the government stepping in with initiatives that support and enhance growth in this sector. Real estate developers will expand their operations in non-metro cities in 2023. The most recent example is the announcement of the Mumbai 3.0 project by the Government of Maharashtra (GoM). The government is committed to developing Neral-Karjat, Panvel and the NAINA region in the Mumbai Metropolitan Region (MMR) as a part of the project. Numerous infrastructure projects in the city, that were stuck due to the pandemic, are expected to resume and pick up pace in the New Year. This will change the entire dynamics of the realty here,” explained Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.

“The Indian real estate sector bounced back strongly in 2022, with the resumption of economic activities in full swing, post the COVID-19 pandemic. All segments of real estate — housing, office, retail, warehousing, data centres, co-working and co-living — performed well. Housing sales, too, are all set to breach the pre-COVID levels and may achieve an all-time high. The pent up demand of the last two years and the strong need to own residential properties in the wake of the pandemic were the two major demand drivers behind this strong revival. the sales momentum has remained intact despite an increase in interest rates on home loans by over two percentage points. Leasing of office, retail and warehousing spaces also recovered this year. Co-working and co-living operators heaved a sigh of relief as business was back, with the opening of offices and educational institutions. The capital as well as the rental value of properties also appreciated. PropTech companies continued to grow with the increased usage of technology across various stages of the real estate value chain,” said Dhruv Agarwala, Group CEO, Housing.com, Proptiger.com and Makaan.com.

There are indications of inflation and the RBI’s stance in the recently-concluded Monetary Policy Committee (MPC) indicates a gradual slowdown of monetary tightening. This means that home loan interest rates may not go up significantly from the current level. The realty sector is one of the biggest job creators in India. Therefore, the government is expected to come up with policy support in the new financial year.

Harrish Kumar Jain, vice-president of Brihanmumbai Developers Association (BDA), opines, “The housing market, a driver of growth and sustenance of the entire real estate economy, is poised to witness an extremely impressive, and potentially its best year, in the near future. Residential sales are up by a whopping 51% post-Covid-19. A growing economy, a return to a pre-pandemic working state and the various government initiatives, combined, are creating a very conducive environment for the prosperity of the real estate market in the years to come.”

“In a nutshell, it was a good year for the entire real estate sector after a long gap, looking past the disruptions in the last 5-6 years caused by demonetisation, the introduction of RERA & GST, the NBFC crisis and of course, the COVID-19 pandemic. We strongly believe that the real estate sector will continue on a growth trajectory in 2023 as well,” Agarwala adds.

Most experts believe that challenges are not yet over but the resilience shown by the Indian realty sector proves that it has the robustness and ability to pass the toughest tests.