‘Low, be­nign in­fla­tion sig­nals re­vival in hous­ing de­mand’

Hindustan Times (Chandigarh) - Estates - - NEWS - Ramesh Nair ht­spe­cial­pro­jects@hin­dus­tan­times.com

The com­mon in­dus­try per­cep­tion that an in­crease in cap­i­tal val­ues fu­els hous­ing de­mand is a mis­con­cep­tion. It is af­ford­abil­ity that plays an im­por­tant role in de­mand for hous­ing. The syn­er­gies be­tween hous­ing de­mand with hous­ing af­ford abil­ity across the top seven In­dian cities( fac­tor­ing in the dif­fer­ence be­tween an­nual per-capita in­come growth and growth of res­i­den­tial prices ,) in­di­cate a rea­son­ably strong cor­re­la­tion.

As the ob­ser­va­tion sug­gests, at any point in time when hous­ing af­ford­abil­ity in­creased, buyer de­mand also grew with a time lag of be­tween 12-18 months. How­ever, an ex­cep­tion to this re­la­tion­ship has been ob­served in re­cent years(2013-2015), pos­si­bly ow­ing to the fol­low­ing fac­tors:

Prior to the gen­eral elec­tions of 2014, high un­cer­tainty over realestate mar­ket growth led to a near col­lapse of in­vest­ment de­mand and a weak con­sumer sen­ti­ment. This sce­nario has changed com­pletely now, with In­dia once again prov­ing to be a good in­vest­ment des­ti­na­tion and real es­tate at­tract­ing an in­creas­ing share of the over­all global cap­i­tal flows into In­dia

Post the 2014 elec­tion, a con­sis­tent push from the newly elected gov­ern­ment to in­crease sup­ply of af­ford­able home prob­a­bly made con­sumers be­lieve that prices may­fall. De­vel­op­ers have now re­alised that the time for launch­ing houses at af­ford­able price points is upon them, and they are go­ing to con­sid­er­able lengths to do so.

In­di­vid­ual pur­chas­ing power has im­proved over the last few years, within comes ris­ing faster than hous­ing prices. Also, homebuyer con­fi­dence is now set to in­crease on the back of sev­eral sen­ti­ment-build­ing mea­sures.

For in­stance, the na­tion-wide roll­out of the RealEstate Reg­u­la­tory Act or RERA to­wards mid 2017.

Con­tin­ued dis­counts and schemes from de­vel­op­ers to in­crease af­ford­abil­ity, and de­creas­ing in­for­ma­tion a sym­me­try in the real es­tate sec­tor. Si­mul­ta­ne­ously, re­duc­ing in­fla­tion will also inf use con­fi­dence in po­ten­tial home buy­ers.

In fact, in­fla­tion - or the con­sumer price in­dex - has a ma­jor in­flu­ence on peo­ple’s de­ci­sion to bor­row for a house pur­chase.

In­fla­tion rate also hasas­trong in­flu­ence on con­sumers’ con­fi­dence in the econ­omy, and their own fi­nan­cial sta­bil­ity.

There ex­ists a strong in­verse re­la­tion­ship (cor­re­la­tion of 82%) be­tween the in­fla­tion rate and growth in home loans. The lag be­tween the in­fla­tion and home loan growth is al­most neg­li­gi­ble.

Guid­ance from RBI fore­cast er sur­veys and other mar­ket an­a­lysts sug­gests that in­fla­tion will re­main range-bound at 4-6%, within the com­fort zone of the Cen­tral Bank. The lat­est in­fla­tion data may have shown as pike, but it is still ex­pected to re­main range-bound within a com­fort­able zone. Ramesh Nair is chief ex­ec­u­tive of­fi­cer and coun­try head at realty con­sul­tancy JLL In­dia.

HT FILE PHO­TOS

Realty firms are at­tract­ing a grow­ing share of over­all global cap­i­tal in­flows into In­dia.

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