Heavy home-rent inflation may push tenants to buy homes in 2023, says study

An average home rent inflation of 12 percent across major cities may compel thousands of tenants to think about buying a home next year, a survey by NoBroker has revealed.

According to the property website’s yearly report for 2022, 77 percent of the study’s 26,000 respondents —that tallies to just over 20,000 people — said they would buy a home in 2023. Nearly 31 percent of these respondents said they were doing so because their home rent had become too expensive.

The study terms rent inflation as the “most defining (real estate) trend of 2022”. Given that 12 percent is merely an average figure across Delhi, Mumbai, Bengaluru, Hyderabad, Chennai and Pune, chances are that renting a specific product in a specific location may end up costing much more.

Interestingly, 78 percent of the 20,000 people who said they wanted to buy a home next year wanted a ready-to-move-in unit, 54 percent preferred apartments within a community, and 79 percent said they wanted a home within city limits in close proximity to schools and offices. These factors are generally associated with a demographic that rents homes, and may well be indicative of more tenants looking to make purchases.

In fact, reasons like ‘marriage’, ‘more savings now’ which are usually reasons to buy homes didn’t feature atop the list, with just four percent and six percent respondents listing them as reasons to buy next year.

“The fact that even millennials are now considering buying a home is one of the distinguishing characteristics of the real estate sector today,” said Saurabh Garg, co-founder and chief business officer, NoBroker.com, “Earlier, the millennial generation, known to be a ‘renting generation’, preferred to spend their earnings on the utility aspect of the asset rather than ownership.”

Like Garg says, that is quickly changing today. A sizeable share of 62 percent of the respondents who said they’d buy a home in 2023 will become first-time buyers, should their plans fructify. That share was merely 59 percent, last year.

Most developers are expecting home-buying to see a spike in 2023. “The real estate sector will stay positive in the coming year with many rating agencies projecting growth in development to reach between 8 and 9 percent,” said Pavitra Shankar, Managing Director, Brigade Enterprises, “We anticipate a sustained demand for housing, driven by a growing requirement for homes with more space and physical amenities, post-pandemic.”

The industry believes that prices will most certainly rise next year owing to demand. “Various demand and supply patters assessed over the last decade have already started putting upward pressure on residential property prices,” said Pritam Chivukula, Co-Founder and Director, Tridhaatu Realty.

“We urge the government to extend relaxations and incentives that will better the sector in 2023,” he added, “Lower stamp duty for one has benefited homebuyers in the past as well.”

Price-hikes or not, the consensus is that residential sales will continue their uptick next year too. Developers say mid-income and affordable housing will do well in 2023.

However, it won’t be easy. Nearly 6,000 respondents to NoBroker’s survey said they have no plans of buying a home in 2023. The majority of these respondents (47 percent) said they wouldn’t buy one because the location they would have like to buy a home in isn’t affordable. Another 21 percent said that increasing property prices were a reason to not buy a home next year.

That is perhaps why with lending rates on the rise and the possible continued escalation in property prices, buying-to-save-rent may not be a trend that continues in the medium to long term.