How will the Indian property market perform in 2023 if home prices continue to increase?

India Real Estate Performance in 2023

Increasing salaries and the predicted percolation effect of a rapidly expanding economy have offset the impact of rising mortgage fees and home purchase costs in India in 2022, thereby ensuring that demand from end-users for residential property in India would remain constant through 2023.

According to Shishir Baijal, managing director of Knight Frank India, the affordability of housing in important cities has reduced by just 100 to 200 basis points despite the 225 basis point rise in the repo rate in 2022 and the increase in home prices. Income growth and GDP expansion have offset the impact of rising mortgage rates and home prices on the affordability index.

Due to a 225-basis-point cumulative increase in repo rates and a rise in residential property prices, the affordability of acquiring a house has fallen in absolute terms this year compared to 2021. Still, they are significantly better than they were previous to the pandemic in 2019.

As long as fundamentals such as GDP growth and inflation remain unchanged in 2023, Baijal anticipates that the property sales trend will persist.

The impact of increased mortgage rates and housing prices is mitigated by growing salaries and GDP growth.

Except for Mumbai, all markets fall well below the affordability threshold set by the EMI-to-income ratio. Ahmedabad is the most affordable city at 22%, followed by Kolkata and Pune at 25% apiece. While growing mortgage rates have an influence on affordability, it remains within a range that supports property purchases in key locations.

According to real estate experts, speedier approvals, an abundant floor space index (FSI) for cheap housing, a well-connected mass transport system, and a developed social infrastructure have contributed to the affordability of Indian real estate in cities like Ahmedabad, Pune, Bangalore, and others.

Since 2017, the most affordable cities have been Ahmedabad and Pune. The property purchase affordability index in Ahmedabad and Pune increased from 46% and 39% in 2010 to 22% and 25%.

At 53%, Mumbai is the only market where the affordability ratio surpasses the requirement. Still, affordability has risen the highest in Mumbai since 2011.The affordability index evaluates a buyer's ability to purchase a house by measuring the movement of important components, such as home prices, mortgage rates, and average family income.

In the September quarter of 2022, the performance of the residential and office sectors of the real estate industry exceeded pre-crisis levels. During this period, home sales in the top eight property markets surpassed the 10-year high by 15%.

All in all the concerned players in the Indian real estate industry have to esnure to keep a balanced approach in terms of demand, suplly, pricing of real estate in India in 2023 so that the moemtum in Indian property market keeps going in the right direction.