This is expected to keep buyers’ affordability within a very comfortable range and sustain the momentum in the market over the next year as well.
While India was not fully insulated from global shocks in 2023, improving domestic inflation levels and India’s economic growth outpacing the rest of the world provided headroom to the central bank to maintain status quo through a large part of the year.
The response from the residential markets was robust as sales for the first nine months of 2023 rose to 90% of the full-year figures of 2022.
The affordability levels for home purchase in India saw a decline in 2022 for the first time in a decade having hit peak affordability levels in the previous year. Global recessionary winds and rising interest rates saw India’s central bank raising the repo rate by 225 bps from May till December 2022. And a further 25 bps hike was implemented in February 2023.
The strong residential price growth over the past 12 months amid sticky interest rates did weaken affordability levels but did not act as a momentum-inhibitor, says the report.“We are in the middle of a sustained bull run with buyers continuing to access primary residential markets. Homebuyers look at multiple factors including but not limited to the prevailing economic scenario and future expectations of income and inflation. Also, employment market prospects, income & job stability and current & future savings targets are equally critical when making home purchase decisions,” said Siva Krishnan, Managing Director and Head of Residential Services, India, JLL.According to him, despite residential price hikes being sustained in 2023, better economic and job prospects and healthier income growths compared to 2022 have led to a relatively minor dip in affordability in 2023. Affordability levels remain much above the pre-COVID and worst affordability periods for all cities, clearly highlighting the headroom for market growth to continue.
Affordability was at its lowest in 2013 before rising on a sustained basis through 2014 to hit optimal levels in 2021.
All cities will remain lower than their highest affordability levels seen in 2021, but much higher than their previous lows. Thus, they are likely to see robust market activity prevail to the end of 2024.
Mumbai became an affordable market with its threshold hitting 100 in 2021. It has since slipped below the threshold value of an affordable market but is likely to retain its current affordability and even slightly improve upon it in 2024.
While Kolkata remains the most affordable residential market in India among the top seven cities, it is likely to maintain its top rank through 2023 and 2024. Pune is expected to follow along with Hyderabad, with relatively better HPAI scores in 2024 and 2023 remaining similar to 2022 levels.
“Robust economic fundamentals and improvement in worldwide economic growth prospects, could see the interest rate cycle reverse mildly. This would have a massive impact on affordability levels in 2024. On our prediction of a 40 bps interest rate cut, affordability is expected to be better and second only to the 2021 peak affordability levels. This would continue to support the residential markets’ run,” said Samantak Das, Chief Economist, and Head of Research and REIS, India, JLL.
According to him, even no change to current interest rate levels would keep affordability at the same levels or improve marginally in select markets, as incomes and the economy both look to remain growth-oriented in the next year.