Trends of H2 2023 that can be Expected and its impact on the Real Estate Sector
In light of the projected positive economic climate for the rest of 2023, it is expected that there will be a significant surge in housing demand as more homebuyers look to enter the market. India’s economy is anticipated to achieve a growth rate of 8% in 2023-24, which is poised to bolster housing demand in conjunction with an increase in GDP per capita, improving job market, escalating disposable incomes, and expanding urbanization. Despite global challenges, the Indian economy has demonstrated remarkable resilience, and the real estate sector has followed suit.
The pivotal role of foreign investment in driving the growth of the real estate market in 2023 cannot be overstated. The influx of investments from international entities and NRIs has been a significant catalyst for growth, bolstered by the potential for long-term returns. This has effectively offset any potential risk of a slowdown in domestic demand, ensuring the continued buoyancy of the market.
As per market expectations, the Reserve Bank of India has recently announced its decision to keep the repo rates steady at 6.5% for the third consecutive time. This strategic pause will further strengthen the housing market sentiments, especially with the impending festive season, which is a favourable period for homebuyers. Keeping the repo rate unchanged during the festive season will provide relief to retail borrowers, particularly those with aspirations of securing home loans, as the interest rate on financing is expected to remain stable in the foreseeable future. Moreover, this decision is in sync with the nation’s broader economic objectives aimed at maintaining a balance between inflation and growth.
The current pause in repo rate hikes is incentivising potential homebuyers to opt for premium real estate projects, such as fully-integrated luxury gated communities with a budget of Rs.1 crore and above. The premium housing segment has witnessed significant growth over the past year with no indications of plateauing.
The rapid increase in the demand for housing, along with global supply chain disruption, has resulted in a significant rise in the cost of raw materials. Amid the current landscape of real estate, there is an anticipation of a 5-10% surge in construction expenses for developments that are presently under-construction. The increasing raw material cost is expected to impose a substantial impact on overall housing expenses. This trend will be exacerbated during the heightened demand of the upcoming festive season.
In light of the escalating traffic and congestion in urban centres, it is projected that a substantial proportion of prospective homebuyers will gravitate towards suburban localities in the latter half of 2023. This increase in demand for residential properties in these areas is expected to gain further traction, catalysing the emergence of new growth corridors in the metropolitan areas.
The growing trend of moving to suburban areas has also prompted a surge in the number of individuals contemplating home ownership in tier 2 and tier 3 cities. This phenomenon of reverse migration and decentralization is anticipated to spur economic growth in these regions, thereby bolstering their overall development.
The rapidly expanding real estate market in tier 2 and 3 cities is positioning them as key centres for infrastructure development. By the end of 2023, these cities are poised to rival their metropolitan counterparts, showcasing a plethora of residential and commercial investment opportunities.
The burgeoning trend of urbanisation and the expanding middle class have driven the demand for affordable housing, leading to a surge in housing requirements in tier 3 cities and small towns in 2023. This demand is anticipated to increase manifold in the foreseeable future, thereby creating abundant investment prospects. Moreover, the increasing availability of financing options is poised to push the demand for affordable housing to unprecedented heights.
India’s urban planning initiatives are inextricably linked to the development of sustainable cities. Emphasis will be placed on the development of affordable housing, industrial hubs, and special economic zones in tier 2 and tier 3 cities. This move towards decentralization is expected to revitalise economic activity in regions that were previously underserved, thereby creating additional growth opportunities.
The growing focus on health and wellness has had a profound impact on the market for sustainable housing. As such, real estate developers are now placing greater emphasis on integrating sustainable features, including expansive ventilation and natural light sources. Furthermore, the incorporation of sustainable materials and renewable energy sources, such as rainwater harvesting, waste management, and solar power, are increasingly becoming essential components of modern architectural design. The recent prioritization of “Green Growth” in the Union Budget 2023-24 represents a commendable initiative that will enable real estate developers to more effectively achieve their sustainability goals.
The current landscape of the housing market offers a vast array of options for homebuyers, who are incentivised by favourable financing opportunities and regulatory measures. Furthermore, the growing confidence among consumers combined with the upcoming festive season serves as a catalyst for substantial growth in the latter half of 2023.
