India’s real estate market is currently experiencing a unique phenomenon – property prices are increasing, and so is the demand. This situation seems to defy the basic principles of economics, which state that when prices rise, demand tends to decrease. In this article, we will delve into the reasons behind this paradox by analyzing real estate data and market trends.
Key Factors Driving the Paradoxical Trend:
Highest number of residential units sold in the last decade
- The first half of 2023 (January to June) witnessed the highest number of residential units sold in the last 10 years.
- This surge in demand is a result of pent-up demand from the COVID-19 period and the re-entry of investors who had previously exited the market.
New launches slightly exceeding the number of units sold
- In the same period, the number of new units launched was slightly higher than the number of units sold.
- Developers have recognized the growing demand and are launching back-to-back projects to capitalize on the opportunity.
Consistent data trends across major real estate companies
- Leading real estate companies like Nightfrank, JLL, Colliers, and Anarock have reported similar trends in their data, despite minor variations in methodology and scope.
- This consistency reinforces the reliability of the observed market trends.
Analyzing the Historical Data:
- From 2015 to 2017, the number of new launches decreased due to oversupply and various market challenges, such as the implementation of RERA, demonetization, and GST.
- Between 2015 and 2019, demand remained relatively stable, with a dip in 2020 due to the COVID-19 pandemic.
- Demand revived in 2021, reaching pre-COVID levels by the end of the year, and subsequently hit record highs in 2022 and 2023.
The Role of Deferred Demand:
- The increased demand in 2022 and 2023 can be attributed to the adjustment of demand that was reduced during the COVID-19 pandemic.
- End-users and investors who delayed their decision to buy a property in 2020-21 are now re-entering the market, creating additional demand.
NRI Investment:
- NRI investment has been steadily increasing in India over the last few years, currently accounting for 15-20% of total residential sales.
- This trend is expected to continue, further fueling the demand for properties in India.
Future Demand Drivers:
Growth of Urban Population
- Nearly half of India’s population resides in cities, making it the second most urbanized nation in the world.
- As the urban population continues to grow, the demand for housing in cities will also increase.
Expanding Middle Class
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- Reports by McKinsey and Boston Consulting Group suggest that India’s middle class population will reach around 50 crores by 2025, constituting approximately 40% of the total population.
- The growing middle class, combined with urbanization, will drive the demand for residential real estate in cities.
Desire for Integrated Lifestyle
- The middle class increasingly seeks houses with amenities like gyms, swimming pools, clubs, security, and integrated townships with schools, hospitals, and shopping complexes nearby.
- This demand for an integrated lifestyle contributes to the rising prices of properties.
Historical Boom Cycles and Price Stabilization:
- Indian real estate has historically experienced boom cycles lasting between 5 to 7 years.
- The current price boom has already been underway for 2.5 years and is expected to continue for another 1.5 to 3 years.
- However, the pace of price increases may slow down compared to the last 2.5 years.
- As cities expand and developers launch more projects, the supply and demand gap will gradually increase, leading to price stabilization.
In conclusion, the paradoxical trend of rising property prices and increasing demand in India’s real estate market can be attributed to several factors:
- Pent-up demand from the COVID-19 period
- Re-entry of investors
- Consistent data trends across major real estate companies
- Growing urban population and expanding middle class
- Desire for integrated lifestyles
- Increasing NRI investment
While the current boom cycle is expected to continue for some time, prices may stabilize as the supply and demand gap widens. Buyers may need to adapt their preferences and consider properties further from city centers to find affordable options.
By understanding the underlying drivers of this paradoxical trend, stakeholders in the real estate industry can make informed decisions and navigate the market more effectively.
India's real estate market is experiencing a paradox where both property prices and demand are rising simultaneously.
Key factors include pent-up demand from the COVID-19 period, re-entry of investors, new project launches, and increasing NRI investment.
The first half of 2023 witnessed the highest number of residential units sold in the last decade.
Deferred demand from buyers who delayed purchases during the COVID-19 pandemic has contributed to the increased demand in 2022 and 2023.
NRI investment in India has been steadily increasing, currently accounting for 15-20% of total residential sales, further fueling property demand.
The growth of the urban population and the expanding middle class are significant demographic changes driving the demand for housing.
Middle-class buyers are increasingly seeking houses with amenities like gyms, swimming pools, clubs, security, and integrated townships.
Historically, boom cycles in Indian real estate last between 5 to 7 years, with the current cycle being underway for 2.5 years.
While the current price boom is expected to continue, the pace of price increases may slow down, and prices could stabilize as supply and demand gaps widen.
Buyers may need to adapt their preferences and consider properties further from city centers to find more affordable options.
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