Home prices to rise despite higher rates: Reuters poll

Indian house prices are set to accelerate this year to a pace not seen in half a decade, according to a Reuters poll of property analysts who also warned that higher interest rates will crimp affordability, especially for first-time buyers.

A lack of demand has kept India's property market relatively quiet during the pandemic compared with other world markets that rocketed higher as households scrambled to buy more living space. Those markets are now cooling.

But the release of pentup demand in India, as most employees return to workplaces amid improving vaccination rates and fewer Covid-19 cases, has stirred the country's housing market along with a return of large institutional investors.

Home prices were expected to increase 7.5 per cent nationally this year, the fastest growth in five years, according to a May 11-27 Reuters poll of 13 property analysts, an upgrade from 5 per cent expected in a March poll. Average house prices were forecast to rise 6 per cent next year and in 2024.

Those forecasts come despite expectations for sharply higher interest rates after the Reserve Bank of India earlier this month surprised markets with a 40 basis point repo rate hike to 4.40 per cent and hinted more are coming soon.

"We are entering a period

of price growth, driven in the short- to immediate-term due to rising input costs, and mediumto long-term with demand levels remaining strong and the existence of big players backed by institutional money," said Rohan Sharma, director at JLL Research.

Sharma said given that more rate hikes are coming, "the window of opportunity for homebuyers to enter the market at the current affordable (levels) will close over the next two-three quarters."

Over 60 per cent of respondents to an additional question in the survey, eight of 13, said affordability for firsttime homebuyers would worsen over the next two years.

Expensive house prices have led many would-be first-time homeowners to rent instead. But rents too are expected to become more expensive, according to a majority of respondents.

Vivek Rathi, director of research at Knight Frank, reckons that for every one percentage point increase on a home loan interest rate, affordability is reduced by more than 7 per cent.

Knight Frank, Colliers International, JLL Research, Liases Foras, and TruBoard Partners all expect a significant slowdown in housing activity if rates reach 6 per cent or above.

At the same time, input costs on basic materials have gone up significantly over the past few months globally because of the pandemic-related supply chain disruptions, made worse by Russia's invasion of Ukraine in February.

There is scant reason to expect this trend to reverse any time soon, which means developers who have been absorbing these costs are now passing these on to buyers. This will also contribute to house price rises, analysts said.