Indian Real Estate In Top Cities Has Become Affordable With Property Prices Correcting And Interest Rates Falling: Knight Frank Report

Real estate across India’s top eight cities has become more affordable with property prices correcting and interest rates falling to multi-decade lows. Prices of residential properties have fallen across most of the top eight cities in the last one year between 1% and 9%. The fall is much steeper when compared to 2016 and ranges between 16% and 19%, according to the latest findings of Knight Frank India for the months between July and December 2020.

The sharpest correction of 19% has come in Chennai, followed by Pune, where prices have corrected by 17% in the last four years. Mumbai, the most expensive real estate market in India, has also seen a sharp fall of 16% in residential prices. Bengaluru, which has traditionally been an end-user driven market, has seen a minor increase of 2% in these last four years. However, NCR continues to hold on to its prices and has seen no correction in the last four years.

With the fall in prices and interest rates at multi-decade low, the report highlighted that affordability had improved for India’s top eight cities in the last decade. The affordability is calculated by taking into account the movement in housing prices, household income and the interest rates and its impact on affordability.

Mumbai, though still remains the most expensive city to own a house in India, has seen the affordability improve significantly from 100% in 2011 to 61% in 2020. This means that an average household in Mumbai needs to spend around 61% of their income towards EMI. Ahmedabad remains the most affordable market in the country with 24%, while affordability in NCR has improved from 64% in 2011 to 38% in 2020. Bengaluru has seen affordability index improve from 53% to 28% in the same period.

Meanwhile, the second half of 2020 saw a revival in residential sales, which can be primarily attributed to price corrections across all major markets and fall in home loan rates. Sales in the top eight cities increased 60% in the July-December 2020 period compared to the first half of last year, with these cities recording sales of 94,997 units. Annual sales, however, remained affected by the pandemic and declined 37% in whole of 2020 compared to the year before. Stamp duty cut in Maharashtra bode well for sales in Mumbai and Pune.

Interestingly, the mid- and high-end segment performed better in the second half of 2020, leaving behind the affordable segment. The over `50-lakh category constituted 57% of all sales in H2 2020 while the share of affordable category stood at 43%. Also, a rise was witnessed in transactions in the high-end category.

However, total launches across the country were lower by 34% in 2020, at 146,628 units. In H2 2020, the new launches increased by 42% compared to the January to June 2020 period. Unsold inventory levels declined 2% for the whole of 2020 and stood at 4.25 lakh units. However, sluggish sales velocity in mid-2020 helped quarters-to-sell (QTS) to rise to an average of 10.1 quarters from 8.9 quarters in the January-June period.

The office market in top eight cities recorded transactions of 22.2 million square feet in H2 2020, while new completions were recorded at 17.2 million sqft. The year began on a high note with office leasing achieving 96% of the quarterly average of 2019 in Q12020. However, the government-imposed lockdown due to the pandemic led to temporary economic inactivity and translated into a sharp fall in office leasing activities in Q2 2020. With the return to normality, gross leasing revived to 31% of the quarterly average of 2019 in Q3 2020, eventually surging to a staggering 115% in Q4 2020.

Shishir Baijal, chairman and managing director of Knight Frank India, said, “While the events of 2020 may hasten the evolution of the office space into a more flexible, sustainable and wellness-oriented environment in the long run, it is unlikely that the need for traditional office space will reduce in the foreseeable future.”