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India house price crash: Rising borrowing costs put pressure on market buoyed by curiously positive popular outlook

By Fitri Wulandari

Edited by Vanessa Kintu

18:34, 11 November 2022

Varanasi city architecture at sunset
The Reserve Bank of India has maintained a hawkish stance to combat soaring inflation Photo: Roop_Dey / Shutterstock

While consumers in other nations are cutting back and delaying big-ticket purchases due to potentially impending recessions and high interest rates, Indian consumers are shopping for homes.

Interest rates have risen as the Reserve Bank of India (RBI) has maintained a hawkish stance to combat soaring inflation. But the inflationary pressure has not dampened Indian consumers’ appetite to buy homes.

According to the RBI, India’s housing price index (HPI) recorded annual growth of 3.5% in Q1 fiscal year 2022 (1 April)/2023 (31 March), compared to 1.8% growth in the previous quarter and 2% growth year-over-year (YoY).

As the country’s economy has been projected to slow in 2023, will India’s house price crash? Read on as we look into historical data and factors that drive demand in the India housing market as well as the latest forecast from analysts. 

What is a housing crash?

A housing market crash occurs when home prices collapse after a time of high prices or a housing bubble.

A housing bubble develops when supply outstrips demand, leading to a significant increase in the average price of a home relative to its actual value. If homebuilders continue to build new homes even after demand has begun to decline and sales have slowed, the bubble might burst.

Factors that can increase housing demand include low mortgage rates, better welfare and easy access to bank loans.

A central bank raising its benchmark interest rate may make it harder to find new buyers as it makes mortgage payments more expensive. Homeowners who are unable to make their mortgage payments risk defaulting and foreclosure, which could increase the supply of available houses.

Demand for housing typically declines during economic downturns, especially recessions, which result in job losses, decreased savings and a lack of open positions.

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House price crashes in India: Historical context

Movement of the House Price Index

Movement of the House Price Index

Source: Reserve Bank of India

Data from India’s central bank from 2010/2011 showed prices and sales of homes in housing market in India has climbed. Although in certain periods the pace of price growth rate may slow.

India’s HPI grew 20% in 2011/2012 and 2012/2013. It slowed to 12.7% in 2013/2014 due to subdued demand, according to an RBI report on 10 October 2014.

The RBI’s quarterly HPI indicates house price movement in the India property market across ten major cities. These are Mumbai, Delhi, Chennai, Kolkata, Bengaluru, Lucknow, Ahmedabad, Jaipur, Kanpur and Kochi.

Data from the RBI showed that the HPI fell to 278.5 points in the Q2 2020/2021 when the first wave of Covid-19 outbreaks swept India. It recovered the following three quarters, hitting 287 points in the Q1 2021/2022 despite more Covid-19 outbreaks in India. 

The index for housing market in India dipped to 285 points in the Q2 2021/2022, recovering to 296.9 in the Q1 2022/2023. 

Readings on housing demand from other institutions also corresponded with RBI housing supply.

The HPI, jointly run by the Srini Raju Centre for IT, the Networked Economy (SRITNE), ISB and, showed the index has maintained an upward trend, standing at 119.6 points in September 2022, from 100 points in January 2017.

The Index tracks residential home prices and quantities in Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, the National Capital Region (NCR) and Pune.

Robust housing demand in 2022

Data from property consultants showed house sales did not slow. Instead, India’s housing market saw a jump in both sales volume and prices, showing that rising inflation and high interest rates have not dented demand. 

In the Q3 of 2022, home sales at the top seven Indian cities stood at 88,230 units, a 4% increase from the previous quarter and  a 41% jump from the same period in 2021, according to quarterly residential property report from consultant Anarock. 

The seven cities are New Capital Region (NCR) including Delhi, Mumbai Metropolitan Region (MMR), Bengaluru, Pune, Hyderabad, Kolkata and Chennai.

New unit launches in the seven cities increased by 14% to 93,500 units in Q2 2022, up from 82,100 units in 2021, representing a 45% increase year-over-year (YOY).

Inventory in the seven cities increased by 1% in the third quarter compared to the second quarter, but available house stocks fell by 4% compared to the same quarter in 2021. Average property prices rose by 1% to 2% in Q3, compared to Q2, but prices increased by 4% to 7% compared to Q3 2021 due to an increase in input costs and a post-Covid-19 demand rebound.


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Anarock expected sales to continue strong in the festive quarter (October to December) on the back of strong homeownership sentiment, despite the RBI’s decision to hike the policy rate by 50 basis point (bps) to 5.9% in September.

“Furthermore, in order to maintain the sales momentum during the ongoing festive season, developers have rolled out lucrative launch offers for the homebuyers,” the company said in the report.

Data from real-estate company Proptiger Research also painted the same picture. House sales in India’s top eight cities jumped by 49% YOY to 83,220 units in the July to September quarter, from 55,910 units sold in Q3 2021. 

Despite rising prices, Proptiger Research and Anarock did not suggest developing a housing bubble in India.

Factors driving India housing demand

Under rising inflationary pressure and high interest rate environment, what could be the factors allowing India’s real estate market to defy gravity?

Pandemic boosts housing demand for security

The Covid-19 pandemic with the stay-at-home restriction has highlighted the importance of owning a home. 

In terms of total Covid-19 cases and deaths, India ranks second only to the US. During the peak of Covid-19 outbreaks, major infection hotspots were in densely populated areas with shared facilities.

Renuka Kulkarni, a researcher at real-estate advertising firm, wrote on 2 October:

“With increased focus on health and well-being, projects offering both habitability and affordability will be most preferred by homebuyers.”

Hybrid working models were also expected to drive future demand, Kulkarni added. 

Positive sentiment on finance and property investment

Confidence in future earnings, combined with the pandemic-induced importance of homeownership for safety and security are key factors driving up property sales in the top metros, wrote director and head of research at REA, Ankita Sood; assistant professor of Economics at ISB, ShekharTomar; and research associate at SRITNE, Saiganesh Ramesh on 2 November.

RBI’s India Consumer Confidence Survey in September showed that nearly three quarters of respondents believed spending will rise further next year on the expectation of higher income in 2023. Consumers also preferred to invest in the property sector amid the current uncertainties.

“Given the high volatility in the stock and commodity derivatives market, the real estate market appears to be a more stable option, making for a safe-haven investment in these tumultuous times,” wrote Sood, Tomar and Ramesh.

A joint survey by and National Real Estate Development Council (NAREDCO) for 2H 2022 showed 47% of the 1,000 respondents preferred to invest in real estate, 21% of respondents preferred to invest in the stock market, 16% in fixed deposits and 15% in gold.

Interest rate hike manageable

Vikas Wadhawan, Group CFO of property companies, and said renewed thrust towards home ownership had prevented a fall in housing demand amid rising interest rates. 

RBI has raised its policy rate four times since it kicked off the tightening cycle in May for a combined 190 bps. The central bank’s repo rate stood at 5.9%, from 4% in April. 

“Interest rates are still lucrative despite four successive rate hikes by the RBI; it continues to be lower than during the global financial crisis of 2008,” read the Anarock report. 

The RBI’s repo rate stood around 9% during the 2008 financial crisis, according to RBI

Anarock did not expect that any further rate hike would cause a housing market crash in India:

“Hardening interest rates, if any in the December policy, may play a downside risk in overall demand towards the end of 2022, but the new pandemic-infused desire for homeownership will remain strong throughout the year.”

India housing market predictions for 2022, 2023 and beyond

Without giving a detailed forecast, Anarock expected strong sales momentum to continue despite rising home loan rates and developer prices as a result of RBI’s rate hike: 

“Going forward, we anticipate residential demand to remain steady and be driven primarily by the end users, which will inevitably prevent any unnatural speculative spikes.”

Sood of REA India, who is also Head of Research at projected a positive outlook for residential real estate in the upcoming quarters, supported by favourable discounts and flexible payment options, and renewed importance of home ownership.

Anarock and Sood did not give a detailed forecast on India house price for 2022, 2023 and beyond.

Final thoughts

Analysts mentioned in this article expected housing demand in India to remain strong in the coming quarters supported by renewed importance for house ownership and investment appetite. 

Keep in mind that analyst forecasts for India's housing market crash can be inaccurate. Before trading, you should always conduct your own research, reviewing the most recent news, technical and fundamental analysis, and a wide range of analyst commentary.

Remember that past results do not guarantee future results. And never trade with funds you cannot afford to lose.


Is the real estate market going to crash in India?

Analysts mentioned in this article did not predict there would be a property market crash in India. However, please note that analyst forecasts can be wrong.

Is there a housing bubble in India?

Analysts and data in this article did not indicate India housing bubble as new supply also enter the market. Bear in mind that projections on India's property bubble can be wrong.

Will house prices go down in 2023?

Analysts mentioned in this article did not give a price forecast. However, they suggested that demand was expected to remain strong in the coming quarters. 

Note that analysts’ predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading. And never invest or trade money you cannot afford to lose.

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