NEW DELHI: Low interest rates and incentives offered by state governments & property developers have helped the Covid-hit real estate sector bounce back from lows of the first lockdown when quarterly sales (Q1FY22) had fallen by over 90% Year-on-Year.
As for the buyers who can afford it, the crisis became a good opportunity to upgrade into a bigger space or diversify their investment portfolio by buying real estate at much affordable prices.
With offers slowing down amidst growing demand, steep rise in raw material prices, and hike in interest rates around the corner, industry participants believe that current times are favourable to invest in residential properties.
“This is a good time to buy real estate, especially for end-users who are looking to buy their first home or looking to upgrade to a bigger home. Property prices are favourable, home loan interest rates are at decades low, plenty of options are there in both ready-to-move-in and under construction properties,” said Saransh Trehan, Managing Director, Trehan Group.
Anuj Puri, Chairman of property consultant Anarock Group, also believes that this is indeed the right time to buy a property, particularly those looking for self-use because prevailing interest rates are at decadal low, affordability of homes is all-time best plus developers continue to dole out various offers and discounts on many of the residential projects.
At present, most banks are offering home loans at a starting interest rate of 6.60-6.70%.
Price Hike is Inevitable
According to Puri, given the continuously rising input cost of basic raw materials like cement and steel, developers are now mulling to increase prices.
Already in a few residential projects, prices have risen up to 10%, he adds.
The Reserve Bank of India’s recently released quarterly house price index (HPI), which is based on transaction-level data received from housing registration authorities in ten major cities, revealed that all-India HPI recorded 2.6% growth (y-o-y) in Q2:2021-22 as compared with 2% growth in the previous quarter.
Trehan says rising input costs are eating out developers’ margins, which are already very thin.
“In the last couple of years input costs have increased by almost 20% and developers unwillingly need to pass on the increase to homebuyers. An increase of 10-15% in property cost is inevitable,” he added.
According to industry participants, the cost of construction materials, especially cement and steel, has increased by 40-50% and are showing no signs of slowing down.
Puri adds that in the last one year (amid offers and discounts) many developers saw their stock getting cleared post housing demand surge during the pandemic, thus giving them the leverage to increase prices.
Demand to drive return
Property consultant CBRE’s recent publication, India Market Monitor Q3 2021, highlighted that with a sustained attractive mortgage regime and government incentives, housing sales jumped nearly 46% Q-o-Q to 50,000 units in Q3 2021 and rebounded significantly by approximately 86% YoY on a year to date (YTD) basis.
Hence, despite disruptions and market upheaval during the pandemic, the residential sector has shown resilience – with the outlook being bright.
According to market participants, the expected robust demand can deliver a noticeable return on investment in real estate as property prices are only expected to go up.
Known for giving poor returns, this sector has remained a weak zone among investors for long.
Puri explains, “If we consider the present trends, for anyone who invests `1 crore in a prime location in any of the top cities may see at least avg. 25-30% overall return on investments in the next five year. The rate of return is likely to be more than 50% in 10 yrs. However, a lot depends on the type of property, its location, builder-type etc.”
This return, however, is likely to be much lower than investment in blue chip stocks, another safe investment zone. In the current bull run, benchmark Indexes- Nifty and Sensex- have given a return of 29% in just one year!