India’s wobbling housing market to regain its feet next year

India’s wobbly housing market will find its footing next year, boosted by a recovery from the pandemic and easy monetary policy, according to property analysts in a Reuters poll who were split on what that would mean for affordability.

The Aug. 11-24 poll predicted house prices would grow on average 2.5% nationwide this year, an upgrade from next to nothing, 0.75%, expected in a survey three months ago.

But that forecast was significantly more modest than expectations in similar Reuters polls for most major housing markets, which are already up in double digits this year.

Average Indian house prices were forecast to rise 4.5% next year and 5.5% in 2023, outstripping consumer price inflation by then, partly because raw material costs for builders are due to keep rising.

“The trend of demand remaining buoyant can be attributed to several factors … sustained low interest rates, an overall improvement in the job market, resumed economic activity … and an increasing desire to own physical assets during times of unprecedented uncertainty,” said Anuj Puri, chairman at ANAROCK Property Consultants.

Thousands of such projects were stalled and once-booming housing market activity in Asia’s third-largest economy slowed significantly.

Analysts were split, however, on what would happen to affordability over the coming years.

Seven of 13 analysts who replied to a separate question said affordability would improve over the next two to three years, but almost as many said it would stay the same or worsen.

“Housing affordability may suffer as a combined result of increased costs of construction being transferred to the consumer, lower vacancy levels and increase in interest rates,” said Ramesh Nair, CEO-India at Colliers.

A spread in new coronavirus variants, a slowdown in economic activity and higher interest rates were the biggest downside risks to the outlook, according to respondents in the poll.

Despite retail inflation running above its medium-term target mid-point for about two years, the Reserve Bank of India has opted to support economic growth through low rates after cumulative cuts of 115 basis points to its key repo rate to 4.0% since the pandemic started.

A separate Reuters poll last month showed the RBI would make two 25 basis-point hikes next fiscal year, taking it to 4.5%.