India’s Home Prices Expected to Surge by 7% Amidst Luxury Property Demand and Affordable Housing Challenges

The cost of homes in India is expected to increase by 7% this year and the next, mainly driven by the purchase of high-end properties. Analysts, surveyed by Reuters, highlighted that the demand for affordable homes is more than what is available in the market, contributing to the price hike. Despite a 2.5% increase in interest rates from May 2022 to February 2023 by the Reserve Bank of India, the housing market has remained robust, making India the fastest-growing major economy in Asia.

In 2023, home prices increased by 4.3%, the highest since 2018, according to Reuters calculations based on the RBI’s House Price Index. However, the rapid rise in home prices poses challenges for parts of the economy facing issues like stagnant wages and poverty.

A survey conducted from February 16 to March 1, with 13 property market experts, revealed that average home prices in India are expected to rise by 7.0% this year and the next, similar to the predictions made in November (6.8% and 7.5%).

Experts anticipate a surge in demand for luxury properties, especially from high-net-worth investors. This focus on premium projects by developers is contributing to challenges faced by the affordable housing segment. Responding to the gap between demand and supply for affordable homes over the next 2-3 years, five experts said it would remain the same, four said it would widen, and two said it would narrow.

Despite the efforts of the Reserve Bank of India to control inflation through higher interest rates, a post-pandemic buying spree among high-income earners has driven home prices up. There are expectations that the central bank will reduce interest rates this year, potentially improving affordability.

A majority of strategists (eight out of twelve) believe that purchasing affordability for first-time homebuyers will improve in the coming year, while four believe it will worsen. The expectation is that with lower interest rates in 2024, homebuyers will be eligible for larger loans, positively impacting affordability and demand.

The survey also predicted that home prices in major urban centers like Mumbai, Delhi, and Bengaluru would rise by 6.0%, 5.0%, and 9.0%, respectively, this year.