India home prices set to stay above inflation

Home prices in India are set to hold above consumer inflation, even though interest rates are expected to stay higher for longer than previously thought, a Reuters poll of property analysts found.

A surge in savings and minimal income disruption to cash-rich home buyers during the pandemic led to a rise in demand that has made the market more resilient to interest rates than initially expected.

The May 16-June 1 poll of 12 property analysts predicted national home prices would reach a median 6.0 per cent this year, a modest upgrade from the 5.5 per cent expected in a March survey.

Forecasts ranged widely, from 1.8 per cent to 20.0 per cent.

Average home prices were expected to rise by 5.5 per cent next year and in 2025, outpacing consumer price inflation forecasts of 5.1 per cent and 4.8 per cent for fiscal years 2023/24 and 2024/25, respectively, in a separate Reuters poll.

"The interest rate cycle is near its end," Arvind Nandan, managing director of research at Savills India, said. "We think prices will continue to remain stable or rise steadily - though not steeply."

The Reserve Bank of India raised the repo rate by 250 basis points in this tightening cycle, modest compared with other major central banks. Rates are set to stay at 6.50 per cent for the rest of 2023 and start falling early next year.

"Demand and supply of affordable housing are reducing, while the luxury and high-end segments are witnessing increased traction. As a result, future developments are likely to increase in these segments which will quickly drive overall home prices northwards," said Anuj Puri, chairman of ANAROCK.