End-of-year holiday sales to support the real estate market
Home sales have been strong throughout the year, driven by low interest rates and pent-up demand since the days of the pandemic. With mortgage rates now hovering around 7.9%, after hovering around 6.6% for the past two years, demand remains strong.
This trend is expected to accelerate over the upcoming holiday season when buyers tend to invest in properties as it is considered a prime time to buy a home. On closer inspection, rising mortgage rates haven’t really weighed on demand, as interest rates are still below pre-pandemic levels.
The Housing Price Tracker 2022 report, released by the Confederation of Real Estate Developers of India (CREDAI) and real estate consultancy firms, Colliers India and Liases Foras, shows that demand for residential property has increased in eight cities, including Mumbai Metropolitan Region (MMR), Delhi-NCR, Chennai, Kolkata, Bangalore, Hyderabad, Pune and Ahmedabad.
Buyers know that home prices are on the rise and they want to get closer to a home before prices go up. In recent months, property developers have raised house prices due to the high cost of raw materials such as cement and steel. According to the Housing Price Tracker 2022 report, house prices increased by 5% in the National Capital Region of Delhi, the Metropolitan Region of Mumbai, Kolkata, Pune, Hyderabad, Chennai, Bengaluru and Ahmedabad. The highest price increase was seen in Delhi-NCR at 10% on an annual basis, followed by Ahmedabad and Hyderabad at 9 and 8%, respectively.
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The desire to buy a home before prices escalate should generate a lot of interest in residential real estate during this year’s holiday season. In anticipation of the high demand, real estate developers are launching many new projects with new features. The developers also offer freebies and other incentives to entice buyers. While holiday season incentives are almost a regular feature every year, this time around they could be key to ensuring that the sustained sales growth momentum continues in the coming quarters.
Many builders offer house price discounts and innovative payment methods to entice buyers. The promoters are offering freebies such as personal wardrobes in all bedrooms, a modular kitchen with a fireplace, etc. Some offer programs where developers will pay rent to buyers until they take possession of their home. It’s about getting buyers to buy properties that are under construction. Buyers have shown a clear preference for move-in ready apartments, as it allows them to save money on home rent, while paying home loan EMIs. Developers believe that incentives such as the offer to pay rent will motivate buyers to invest in homes under construction.
The developers are bullish on the sales as they believe the sales momentum is driven by strong fundamentals, such as demand from end-user buyers rather than speculators. Sales in the first half of 2022 (January-June) were the highest in more than a decade and second only to the first half of 2010. This is explained by a growing preference for home ownership among millennials . Millennials make up a significant percentage of first-time home buyers as they settle in and start families. The Covid pandemic has been a wake-up call for many, including millennials, who are looking for a sense of permanence. Nothing offers more security and stability than owning a home. This, aided by rising disposable incomes, is driving demand for housing. Tier two cities such as Ahmedabad, Vadodara, Nashik, Gandhi Nagar and Jaipur, where millennials are buying homes, are expected to see strong sales.
There is also a growing desire for larger and more spacious homes, given the work from home or hybrid work model. Over the past few months, demand for larger homes has increased, with dedicated offices, extra bedrooms, balconies, gyms, and modern gadgets and appliances. This trend should continue for the rest of the year. A report by Knight Frank shows that 60% of all house listings in Mumbai in August 2022 were in the price range of more than Rs 1 crore. Home buyers are increasingly showing a preference for large apartments between 500 and 1000 square feet.
Demand is also strong for luxury and ultra luxury homes, especially from the NRI community. A weakened rupee boosted the purchasing power of NRIs, who showed interest in buying luxury homes in the towns and villages they originally belonged to. NRIs have also shown a preference for plotted developments, which has seen many developers enter this space.
This festive season, a wide range of houses are offered. Developers are optimistic that, given the strong desire to own a home and the attractive offers and gifts, home adoption will be healthy. The holiday season is expected to bolster home sales, and sales numbers will see a huge boost after the holiday season.
(By Shiwang Suraj, Founder and Director, InfraMantra)