Inflation, the gradual increase in the general prices of goods and services, erodes the purchasing power of money over time. For investors seeking to preserve and grow their wealth amidst inflationary pressures, real estate has emerged as a popular hedge against this dreaded but inevitable dynamic, finds ANAROCK research.

Price growth over the last three elections

Shobhit Agarwal, MD & CEO – ANAROCK Capital, says, “After the 2019 elections, average residential prices across the top 7 cities have appreciated at a Compound Annual Growth Rate (CAGR) of 6% – rising from INR 5,600/sq.ft. in June 2019 to INR 7,550/sq.ft by the end of FY 2024. A similar trend was witnessed in relation to the 2014 elections. Average prices across the top 7 cities saw an annual rise of over 6% in 2014 when compared to the preceding year – from INR 4,895/sq.ft in 2013 to INR 5,168/sq.ft in 2014.”

Conversely, before the 2019 elections, average prices rose by a mere 1% annually, and remained rangebound during the tenure.

Source : ANAROCK Research, Data for Top 7 cities

Supply – Demand Dynamics

In the last decade, there were periods when the supply of real estate exceeded demand, resulting in stable price growth that kept pace with inflation in the pre-pandemic era. Between 2013-2020, the top 7 cities recorded a cumulative supply of 23.55 lakh units against a demand for 20.68 lakh units.

Gradually, demand rose in tandem with new supply. Available inventory peaked at approx. 8 lakh units by the end of 2016. However, following the pandemic, residential real estate saw rapid recover, leading to significant price growth that has outpaced general inflation.

Source: ANAROCK Research, Data for Top 7 cities

Real estate – a hedge against inflation

Inflation, the gradual increase in the general prices of goods and services, erodes the purchasing power of money over time. For investors seeking to preserve and grow their wealth amidst inflationary pressures, real estate has emerged as a popular hedge against this dreaded but inevitable dynamic.

Steady population growth coupled with urbanization consistently fuels housing demand. As more people migrate to cities for better opportunities, rising residential demand exerts upward pressure on prices.

Moreover, real estate investments can generate rental income, which potentially grows over time in response to inflation. As the cost of living rises, landlords typically adjust rental rates. Also, investors can leverage their real estate assets to borrow funds for further real estate acquisitions.

During inflationary periods, the cost of borrowing (interest rates) typically rises. However, investors who have secured fixed-rate financing before inflationary pressures set in can benefit from lower borrowing costs in real terms, enhancing the profitability of real estate investments.

“Real estate investments offer diversification benefits within a portfolio,” says Agarwal. “Unlike financial assets such as stocks and bonds, which may be negatively impacted by inflationary pressures, real estate – including residential, commercial, and retail – provides a tangible asset with intrinsic value. Diversifying investment portfolios with real estate holdings can mitigate overall portfolio risk and enhance long-term returns.”

Residential real estate prices have risen continuously since 2013, and in the last two years, appreciated at a CAGR of 13% while CPI inflation moderated by 1.3% on an annual average basis to 5.4% at the end of FY24. This trend signifies a clear outperformance of real estate prices compared to inflation.

With tangible real estate, in response to growing investor demand for inflation protection, financial instruments such as real estate investment trusts (REITs) and inflation-linked bonds have gained popularity. REITs, which invest in income-generating real estate, offer investors exposure to the real estate market coupled with liquidity and diversification benefits. Similarly, inflation-linked bonds adjust their principal and interest payments based on changes in inflation rates.

Also Read: Home Prices To Go Up Or To Remain The Same?

The post Housing Prices Soar with 13% CAGR as Inflation Moderates to 5.4% appeared first on Square Feat India.

 Despite hardening property prices and home loan interest rate hikes in early 2023, it has been a superlative year for Indian residential real estate. Latest ANAROCK Research data indicates that housing sales in the top 7 cities have created a new peak in 2023, breaching the previous high of 2022. Approx. 4,76,530 units were sold in 2023 against 3,64,870 units in 2022 across the top 7 cities – rising by 31% Y-o-Y. The last peak in the decade was seen in 2022, after 2014, when approx. 3.43 lakh units were sold in the top 7 cities.

MMR witnessed the highest sales of approx. 1,53,870 units in 2023, followed by Pune with approx. 86,680 units. The two western markets together led residential sales in 2023.

New launches across the top 7 cities saw a 25% annual rise – from approx. 3,57,640 units in 2022 to approx. 4,45,770 units in 2023. MMR and Pune saw the most new launches, together comprising an nearly 54% share of total new launches in the year.

Anuj Puri, Chairman – ANAROCK Group, says, “2023 has been phenomenal for the Indian housing sector, despite global headwinds, rising domestic property prices, and interest rate hikes over the first half this year. Housing sales in the top 7 cities breached the previous high of 2022, and new launches stayed in step with the current housing demand.”

“It was widely expected that rising property prices and interest rates, along with global market upheavals and uncertainties, would impact residential sales,” says Puri. “The market put paid to these predictions. Q4 2023 maintained the strong momentum set during the entire year with more than 1,27,370 units sold in the period. Interestingly, NCR was seen as deliberately restricting new supply in the year, to approx. 36,735 units, though it witnessed extremely healthy sales at approx. 65,625 units. With this cautious approach, NCR reduced its unsold inventory stock by a very significant 23% annually.”

Demand is likely to remain undeterred in 2024, even with average prices likely to appreciate by 8-10% across the top 7 cities. The unchanged home loan rates in the second half of 2023 helped maintain the overall positive consumer sentiment.

“While housing price hikes over the year did give rise to demand concerns, the unchanged home loan rates helped keep sales on an even keel,” says Puri. “Inflation in India has also more or less stabilized, and further hikes in the lending rate seem less than likely. The Indian economy remains bullish, and this directly correlates to residential demand. And, equally importantly, new supply is dominated by Grade A developers who are completing their projects on time. This is a strong housing demand bulwark.”

Among the budget categories, luxury housing demand increased exponentially as homebuyers continue to look for bigger livable spaces post the pandemic. The new luxury supply addition across the top 7 cities in 2023 has jumped up five times when compared to 2018. There is no reason to expect luxury housing demand to taper off in 2024.

Housing Sales Overview City-wise

Source: ANAROCK Research

Residential sales stood at approx. 4,76,530 units in 2023 against 3,64,870 units in 2022 across the top 7 cities – rising yearly by 31%. MMR, Pune, Bengaluru, Hyderabad, and NCR, together accounted for 91% of the sales in the year.

• MMR recorded the highest sales in 2023 across the top 7 cities. With nearly 1,53,870 units sold in 2023, the city witnessed an annual increase of a significant 40%.
• Pune recorded sales of around 86,680 units in 2023 – an increase of 52% over 2022.
• NCR recorded sales of approx. 65,625 units in 2023, increasing by 3% over the last one year.
• Bengaluru saw approx. 63,980 units sold in 2023 – an annual increase of 29%.
• Hyderabad recorded sales of approx. 61,715 units in 2023 – a yearly increase of 30% over 2022.
• Kolkata recorded sales of approx. 23,030 units in 2023 – an annual increase of 9% over the previous year.
• Chennai saw approx. 21,630 units sold in Chennai in 2023 – a yearly jump of 34% over 2022.

New Launches Overview – City-wise

Source: ANAROCK Research

The top 7 cities saw approx. 4,45,770 new units launched in 2023, as opposed to 3,57,640 units in 2022 – an annual increase of 25%. The key cities contributing to new unit launches in the year were MMR, Hyderabad, Pune, and Bengaluru, together accounting for 83% of the total supply addition.

• MMR saw the highest number (approx. 1,57,700) of new units launched in 2023 among the top 7 cities. Over 61% of the new supply was added in the INR 40 lakhs to INR 2.5 Cr budget segment.
• Pune added approx. 83,625 units in 2023, a significant annual increase of 30% over the previous year. Over 80% of the new supply was added in the INR 40 lakhs – INR 2.5 Cr budget segment.
• Hyderabad added new supply of approx. 76,345 units in 2023 – an increase of 12% over 2022. Over 82% of the new supply was added in the INR 40 lakh to INR 2.5 Cr budget segment.
• Bengaluru added approx. 54,435 units in 2023, a yearly increase of 11%. Approx. 92% of the new supply was added in the INR 40 lakhs – INR 2.5 Cr budget segment.
• NCR launched approx. 36,735 new units this year – a significant 45% rise over 2022. Over 51% of the new supply was added in the INR 40 lakh to INR 2.5 Cr budget segment.
• Chennai added approx. 20,140 units in 2023, a whopping annual increase of 102% over the previous year. Over 82% of the new supply was added in the INR 40 lakh to INR 2.5 Cr budget segment.
• Kolkata added approx. 16,790 units in 2023, an annual increase of just 4% over 2022. Approx. 78% new supply was added in sub-INR 80 lakhs budget segment.

Price Movement

Source: ANAROCK Research

On annual basis, housing prices rose by between 10-24% across the top 7 cities, primarily due to increased input costs and strong demand. Hyderabad recorded the highest yearly jump of 24% in average residential prices – from INR 4,620 per sq. ft. in 2022 to nearly INR 5,750 per sq. ft. in 2023.

Available inventory as of 2023-end

On an annual basis, available inventory declined by 5% in 2023-end across the top 7 cities despite strong new housing supply during the current year. Approx. 6 lakh units are available for sale across the top 7 cities in India. Interestingly, NCR saw the highest decline of 23% in unsold stock on a yearly basis – from approx. 1,23,690 units by 2022-end to approx. 94,800 units as of 2023-end. This is the first time since 2013 that NCR’s unsold stock is less than a lakh units.

Also Read: Indian Real Estate: Altered courses and emerging stronger in 2024

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