Some people believe that the Indian real estate market could crash due to the increasing property prices. On the other hand, some believe that the property market in India will continue to grow. Those who have already purchased properties want good returns on their investments and therefore wish for the market to grow further.
However, those who are considering buying a home are confused about whether it's the right time to make a property purchase or if they should wait for some time. Sure, it's worth waiting. However, the answer to both these questions will be evident by analysing the performance report of the property market.
Today, we will analyse the performance report of Quarter One of 2024, which means January, February, March 2024, and see what the data indicates. Whether it's the right time to invest or if there could be a slowdown in the market.
There are several real estate research companies that have published the performance report of Quarter One of 2024. There is a slight difference in the data among them because some have considered seven metro cities while others have considered eight metro cities. There is also a difference in the definition of Mumbai MMR (Mumbai Metropolitan Region) and Delhi NCR (National Capital Region) among them.
But broadly, the percentage performance is almost similar. Therefore, we will evaluate the absolute numbers, not just the percentages, to get a better picture. Among all these reports, we personally found Knight Frank's report more comprehensive, so we have used their report for today's analysis. We have also shared the link to their report in the description below.
So let's start. First, by looking at the sales numbers. Overall residential sales have grown by 9% from January to March 2023, meaning in comparison to the last year. It means there is demand, though not significantly higher. However, it's important to note that the demand hasn't decreased. It means people still want to buy homes.
If we look at 2019, comparing with pre-COVID, the demand has increased by 140. It means people are more confident about the property market than they were five years ago. If we look at city-wise data, the highest sales growth has been observed in Mumbai MMR, followed by Hyderabad and Pune. Delhi NCR and Bangalore have experienced a lower sales growth.
In fact, Bangalore is a notable city where sales have decreased compared to last year, but not significantly. Historically, January to March has always been a good time for real estate. Sales tend to increase significantly in these three months.
This year, while the growth has been decent, it indicates that demand is gradually stabilizing a bit, but still growing. It means people are still positive about buying homes. Now, speaking budget-wise, the market share of properties priced above 1 crore has increased from 29% to 40%. However, the market share of the mid-segment, which includes properties ranging from 50 lakhs to 1 crore, has decreased.
The mid-segment's market share has dropped from 38% to 33%, while the market share of affordable housing, meaning properties priced below 50 lakhs, has decreased from 32% to 27%. Here, there's a thought process that due to the increasing demand for luxury housing, sales of properties priced above 1 crore have increased. While to some extent this may be true, the cost of construction and inflation have made properties more expensive.
Plus, developers have taken advantage of the favourable market conditions by increasing property prices to earn additional profits. As a result, if more premium properties are developed, their share of sales will also increase, which directly impacts the mid-segment properties because launches in that segment are decreasing. If launches decrease, their share of sales will also decrease.
However, the case is not the same for the affordable housing. In the case of affordable segment, developers have significantly reduced the development of new projects because, firstly, the cost of land has increased substantially, and the cost of construction has also risen.
But primarily due to major government regulations, it has become unprofitable to build and sell affordable projects. Therefore, in the future, we will see that maximum projects will be launched in the premium segment, gradually reducing the launches in the affordable and mid segments.
Now, if we look at the data for new launches in India, they have increased by 7% from the last quarter to the present quarter. And if we compare with pre-COVID 2019, they have increased by 167%. It means real estate developers are still confident that new products will sell.
If we compare city-wise data, Kolkata has witnessed the highest number of new launches, followed by Pune, Chennai, and Bangalore NCR, Hyderabad, and Mumbai have seen marginal changes. But if we compare data from the last 5 years, the cities with the highest number of new launches are Kolkata, Hyderabad, and Delhi NCR. It means there has been a significant increase in supply in these cities in the last few years.
Talking about price growth, prices have ranged from 5% to 13% on average. From the last year, some specific locations have even seen exceptional price increases, reaching up to 203%. However, on average, prices have increased by 5% to 13%. If we compare with the last quarter, price growth has been marginal, around 1-2%. It means developers are also realizing that buyers are not ready for higher price rises.
If prices increase now, sales might slow down. This is the first sign of a market correction, that developers are slowing down on price increases. To analyze the correlation between new launches and price growth, we need to analyze the data of unsold inventory.
If we look at the unsold inventory, inventory below 50 lakhs has decreased by less than 8% because there have been fewer new launches in this segment, and existing inventory is still selling. However, properties priced above 1 crore have the highest amount of unsold inventory, at around 33%. Basically, in this segment, there have been the highest number of new launches, the highest sales, and also the highest amount of unsold inventory.
Having more unsold inventory means developers will face pressure, and they will be reluctant to increase prices. They will be apprehensive about the direct impact on sales if they increase prices. Selling the unsold inventory will lead to intense competition among developers, and therefore, in the upcoming quarters, we might see a lot of offers and discounts.
Now, the question arises: how long will it take for this unsold inventory to sell? For this, we need to analyze the data of quarters to sell. The cutie of this is that if no new projects are launched from tomorrow, based on the current demand, how many months will it take for all this unsold inventory to sell completely?
So, as of right now, based on the current demand, properties priced below 50 lakhs will sell completely in 7.7 quarters, meaning almost 2 years. Properties priced above 1 crore will sell completely in 5.2 quarters, meaning less than 1.5 years. Now, if all the unsold inventory is selling in less than 5 quarters, it means it will be sold out before the project is completed. This is very good news for developers.
If under construction the entire project sells out at the prelaunch stage, developers will be quite bullish about the market and will continue to bring in more new launches. This means that in the coming quarters, we can expect to see many new launch projects, indicating that inventory supply will increase significantly in the future.
Finally, let's look bit into the mindset of investors. According to a report by a global property consultant company, institutional investment in Indian real estate dropped below 55% in Quarter 1 of 2023, which is a significant drop. The major reason for this 55% drop is that foreign institutional investment decreased by 99% compared to last year. This indicates that foreign institutional investors are feeling hesitant about the Indian real estate market near future performance.
However, at the same time, Indian institutional investors are confident that the Indian real estate market will perform very well, as their contribution has increased by more than 21% compared to last year. In fact, in this quarter, funding from Indian fund houses accounts for 98% of the total funding.
If we analyze investment segment-wise, investment in commercial projects has decreased by less than 52%, while investment in residential projects has decreased by less than 33% considering total investment. This indicates that investors.
The sentiment regarding residential properties is not as negative as compared to commercial properties. Now the question arises: what will happen next? Is this the right time to buy property? To answer this, we need to correlate all this information together. Firstly, Indian institutional investors, meaning major investors, are still confident in the residential market, expecting good returns on their investments.
New property launches are also increasing marginally, indicating that developers are also confident that people are still interested in buying homes. Comparing prices from the last quarter, prices have increased minimally. This means that developers realize that if they increase prices now, sales may not happen. This also implies that the possibility of price increase in the future is very low.
There is a significant amount of unsold inventory priced above one crore, indicating that inventory supply of expensive properties is increasing. However, considering the current demand, all these properties will sell out at the under-construction stage itself. This means that developers are still confident, and there may be fewer new project launches in the next quarter or two.
However, we can expect many new projects launches in Quarter 3 and Quarter 4. Price movement this year is not expected to be very high; prices will increase according to the inflation rate. Some micro-markets will definitely see significant price increases where infrastructure projects that were proposed long ago are now reaching completion.
Being near completion, prices there could increase. The real challenge will come when the many projects launched in the last four years reach completion. When these projects are ready, investors will seek exit, meaning the supply of ready-to-move-in inventory will increase suddenly. This could lead to a slowdown, but it will take time.
This problem may start around 2026-27; until then, the market will remain stable, with moderate price growth. However, some people are not entirely optimistic. They believe that the property market is already overheated and may be in a bubble. Prices are so high that homes are not selling. But the reality is that new projects are being launched every day, and many are selling out in a short duration.
Whether you accept this or not, the truth is that there doesn't seem to be any possibility of a crash in the property market this year. Yes, there might be a crash or a slowdown in the future. So, if you're an end-user and something good is available within your budget, you should definitely buy it. There is no possibility of prices decreasing; in fact, they might increase slightly.
But if you're an investor and thinking of making a short-term profit in three to four years, according to me, this is not the right time to enter the market. The possibility of earning a good profit in the short term is very low. But if you're planning for long-term investment, then you can stay calm and enter the market.
Invest because there is a high possibility of getting good returns in the long term. We hope you found today's article interesting. If you liked it, you can share it with people in your network who are considering investing in real estate, so they can make an informed decision. Thank you.
