Throughout 2022, housing sales remained upbeat, and the current sales momentum will sustain at least till the first quarter of 2023. Thereafter, much will depend on forces other than the desire for home ownership, such as additional repo rate hikes and property price increases. In 2022, the repo rate went up by almost 225 bps, and home loan interest rates too went up concurrently.
So far, the rate hikes have had only a marginal impact on residential absorption. While more affordable housing buyers stepped back from purchase decisions, mid-income and luxury homes sales were not markedly affected. However, there is a tolerance limit even to the most upbeat sentiment.
Readings from Anarock’s Consumer Sentiment Survey indicated that if home loan interest rates rise above the 9.5 per cent mark, considerable housing demand contraction can be expected. The launch trend in 2022 was calculated with caution, with developers refraining from putting more inventory on the market than it could reasonably absorb -- especially in already abundantly supplied markets, according to Anarock.
Imminent recession
An imminent US recession in 2023, if it unfolds as seems possible now, will impact housing demand at least marginally. Reduced flows of IT/ITeS work outsourced to India and further layoffs will leave their mark on residential absorption here.
Apart from the fact that IT employees contribute a sizable chunk of the housing demand here, hawkish federal rates have a visible impact on Indian stock markets. Ready-to-move-in housing will continue to draw most of the demand in 2023. The focus of buyers opting for new launches will not waver from projects by leading and listed players.
Reduced stock earnings suppress the appetite for discretionary spending and making long-term financial commitments, especially in the cost-intensive housing sector that stays afloat on home loans. Developers have already factored in this possibility, causing them to hold an even tighter rein on new supply until more clarity emerges.
Commercial real estate
The fate of the commercial real estate sector hands in a fine balance in 2023. The forecast here is cloudy with chances of sunshine. A global recession would have several direct and considerable repercussions on the Indian commercial office market. This sector depends heavily on expansion by domestic and international corporates.
Currently, 70 per cent of offices are occupied by foreign companies who focus on cost advantages like sub-dollar rentals for good quality Grade A offices, and almost 80 per cent lower operating cost per full-time employee in India compared to the Tier II cities in the US, Anarock added.
Foreign firms occupy 70% of office space
Currently, 70 per cent of offices are occupied by foreign companies who focus on cost advantages like sub-dollar rentals for good quality Grade A offices, and almost 80 per cent lower operating cost per full-time employee in India