2022 Marks the Return of Real Estate Investors

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By Akash Pharande, Managing Director – Pharande Spaces

The pandemic had brought in an urgency to purchase homes, causing housing demand to hit a peak that lasted over 2 years. However, late realty stocks have been under performing, developers are increasing their property rates, and home loan interest rates have begun to increase. Is real estate’s dream run over? Let us look at the underlying fundamentals.

According to a recent report by a leading real estate consultant, quarterly housing sales in Q1 2022 had hit an all-time high since 2015 – the main 7 cities of India alone sold over 99,500 homes. Notably, the consultant did not consider sales in tier 2 and tier 3 cities. Sales in just the primary 7 cities represented a 71% increase over the first quarter of last year.

This sales performance happened even though there were still many disruptions in people’s lives. Now that the more severe impact of the Covid-19 pandemic is fading away, the employment market has opened up, and IT sector employees are enjoying significant salary hikes and improved job security.

The IT sector is a major driver of the economy – and housing demand – in cities like Bengaluru, Pune, Hyderabad, Chennai, and several tier 2 and tier 3 cities. After hitting a low during the first and second waves, Indian office real estate demand has begun picking up again now that many companies are calling their workforce back to the office. They require more spaces to accommodate existing and fresh employees.

To answer the ‘back to office’ clarion call, Indians are returning from their native cities, where they had gone to weather the worst of the pandemic. As a result, demand for housing in the bigger cities is increasing significantly. While most of the demand continues to be from end-users, we are now noting an interesting new development – real estate investors are staging a comeback.

Factors That Will Boost Housing Demand

–  Greater trust and confidence in real estate – By bringing about greater accountability, RERA has reinstated trust in Indian real estate
–  Burgeoning urbanization – Urbanization in India stood at 35% in 2020, up from 31% in 2010, and will very possibly touch 40% by 2030
–  Surging working population – The Indian working population represented 61% of the total population in 2011, and will likely reach 65% by 2036
–  Massive inherent demand – Even today, India stares at an urban housing shortage of over 28 million homes
–  Affordability – Home loan payment to income ratio had reduced from 58% in FY08 to 28% in FY22
–  Upcoming infrastructure – Investment in the country’s infrastructure, which is one of the biggest drivers for real estate development as well as housing demand, will exceed USD 1.4 Tn by 2027
–  High appetite for real estate investment – In most Indian families from the middle-class demographic upwards, real estate represents more than 40% of investment portfolios

The Return of the Investor

For several years, real estate investors had been discouraged by the lack of upward movement in property prices and abstained from the housing sector, instead preferring commercial real estate. Now, especially after RERA has cleaned up the housing sector, they are once again turning their attention to housing.

One of the biggest incentives for investors is that housing prices have started rising after remaining flat for over 4 years. There are good prospects for capital appreciation, and rental demand is improving rapidly after the pandemic eased its dampening grip on the rental housing sector.

Investors are eager to lock in the current prices before they increase further. Another reason why investors are zeroing in on housing once again is because while the stock market remained volatile and unpredictable, good-quality residential real estate retained its value even during the darkest days of the pandemic.

Investors now perceive housing as a stabler, more reliable asset class. They are easily identifiable by the types of questions they ask and their finely-honed negotiation techniques. Over the last couple of months, brokerages and developers’ sales teams have reported that between 20-25% of the serious enquiries have been coming from investors.

They are primarily interested in projects by well-known national and local developers who give complete assurance on time-bound project completions and construction quality and include the best amenities and facilities. If the project is by such a developer, investors are okay with considering under-construction properties.

Should You Invest?

If you already own a home, the question of whether buying a second or third property purely for rental income and capital appreciation is now indeed a pertinent one. As you mull over this lucrative possibility, remember that rising construction costs will make prices go up further going forward. There is still an opportunity to lock in the relatively lower property prices and home loan interest rates.

Adopt the approach of professional investors who prefer under-construction properties by top-grade builders. They give you a lower entry point and better future profitability. Moreover, under-construction homes’ prices increase organically and, additionally, in tandem with approaching project completion. Take care to only go in for under-construction homes by reputed builders.

We are currently at the cusp of a significant growth spurt in the housing sector. So far, demand has not been impacted by the gradually increasing cost of buying homes. Countless Indians will use the next 12-18 months to invest in lucrative housing to secure their financial futures.

The re-entry of property investors, who will buy up all the best options, marks a major turning point for property prices. Don’t miss the wave and seize the moment.