Luxury house sales keep rising but budget home buyers’ dreams may falter

Meanwhile, Macrotech Developers Ltd (formerly Lodha Developers) recorded its best quarterly sales ever for Rs 3,148 crore, demonstrating a growth of 57 percent on a YoY basis. H1 sales totalled Rs 6,004 crore, which is 52 percent of the full-year guidance of Rs 11,500 crore.

Anarock's research shows that buoyed by increasing demand, developers have also significantly increased their new supply in the luxury homes category in the first half of 2022. As many as 33,210 luxury units have been launched across the top seven cities collectively in H1 2022. Back in H1 2019, there were merely 16,110 units launched in the luxury segment, the company said in its Consumer Sentiment Survey report.

Its research also shows that in comparison with the pre-COVID survey (in 2019), there has been a 4 percent rise in the share of votes for luxury homes – from 6 percent pre-COVID to 10 percent in H1 2022.

Meanwhile, the premium segment, priced between Rs 90 lakh to Rs 1.5 crore, also saw an uptick in demand over the same period – from 18 percent vote share in pre-pandemic times to 24 percent in H1 2022.

This means demand remains robust despite rising home loan interest rates and property costs.

However, experts are divided when it comes to home affordability even as they expect luxury home sales to remain unaffected.

Brokerage firm CLSA is of the view that rising prices and interest rate hikes have been hurting home affordability, which is still on par with pre-COVID. In a note on September 25, the brokerage said home affordability has deteriorated by 17 percent over the past 12 months and it expects it to worsen by a further 8 percent over the next 12 months. It sees sharp presales growth over 2020-22 to moderate over FY24-25.

Jefferies, on the other hand, in its note on September 19, said “updated affordability analysis suggests we are still early in the cycle, with pricing being the likely bigger influencer for affordability going forward as inventories stay low.”

It added that data from Propequity shows that the average selling price (ASP) in top seven cities for months of July-August 2022 is up 12 percent YoY. The impact on affordability from price increase is thus higher than the interest rate increase. “Channel checks suggest that certain markets are much ahead in price hikes, with pricing from COVID lows (mid-20) rising much faster in NCR (20-40 percent) and Bangalore (15-20 percent) than the MMR (10-15 percent),” the brokerage said.

Jefferies added that its affordability indicator shows that mortgage payments as a percentage of income levels are early cycle (33 percent vs 40 percent 20-year average). To the extent, the income levels are rising (10 percent in FY23), there is set-off to the affordability hit, it added.

Meanwhile, on September 30, the Reserve Bank of India hiked the repo rate for the fourth time in a row by a further 50 bps to 5.9 percent.

According to Amit Goyal, CEO, India Sotheby’s International Realty, the hike might impact consumption sentiments negatively ahead of the festive season. “However, from a home buyers’ perspective, home loan rates will still remain below 9 percent per annum and they must utilise this opportunity and make their purchases by cashing in on offers and festive discounts in the market,” he said.

However, Piyush Bothra, Co-founder and CFO, Square Yards believes that in spite of the hike, the affordability of home loans is still good, and robust housing demand and growing income stability will continue to keep the real estate sector going. However, second and upgrade home buyers may exercise caution, he added.

"Home loan interest rates may increase now, leading to short-term turbulence on overall housing demand. The recent consecutive repo rate hikes had already added to buyers’ overall acquisition cost. With gradually increasing loan rates, homebuyers’ apprehension could set in quickly and they might adopt the wait-and-watch sentiment," Ramani Sastri, Chairman and MD, Sterling Developers Pvt Ltd, said.

Sterling Developers, however, believes there may be a silver lining, as affordability and the disposable incomes of new-age homebuyers are much higher than what it was a few years ago. “Despite the odds, we’re still hopeful as there is significant pent-up demand from a very large population base and first-time home buyers,” Sastri said.

Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company, known for luxury themed homes in Goa, said “We don’t see a significant impact on the luxury housing segments due to the current increase in repo rate hikes as the demand of home buyers in this segment is beyond these considerations.”

He added that the impact of rate hike will be predominantly on the affordable housing side, which is primarily driven by sentiments and especially first-time home buyers who are heavily reliant on home loans.