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2022 marks the return of real estate investors

Posted May 25, 2022

– by Akash Pharande, General Manager – Espaces Pharande

The pandemic had led to an emergency to buy houses, causing a spike in housing demand that lasted more than 2 years. However, late housing stocks have underperformed, developers are raising their mortgage rates and mortgage interest rates have started to rise. Is the dream of real estate outdated? Let’s look at the underlying fundamentals.

According to a recent report by a leading real estate consultant, quarterly home sales in the first quarter of 2022 hit an all-time high since 2015 – India’s 7 major cities alone sold over 99,500 homes. Notably, the consultant did not take into account sales in Tier 2 and Tier 3 cities. Sales in just the top 7 cities represented a 71% increase over the first quarter of last year.

This business performance happened even when there were still many upheavals in people’s lives. Now that the more severe impact of the Covid-19 pandemic is fading, the job market has opened up and IT workers are enjoying big pay rises and better job security. job.

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 bottoming out in the first and second waves , Indian demand for office property has started to pick up again now that many companies are calling their staff back to the office. They need more spaces to accommodate existing and new employees.

To answer the clarion call of ‘back to office’, Indians are returning from their hometowns, where they had gone to face the worst of the pandemic. As a result, the demand for housing in large cities is increasing significantly. While most of the demand continues to come from end users, we are now noticing an interesting new development: real estate investors are making a comeback.

Factors that will drive housing demand

  • Greater confidence in real estate – By bringing greater accountability, RERA has restored confidence in Indian real estate
  • Booming Urbanization – Urbanization in India stood at 35% in 2020, up from 31% in 2010, and will most likely reach 40% by 2030
  • Increase in labor force – India’s labor force was 61% of the total population in 2011 and will likely reach 65% by 2036
  • Massive inherent demand – Even today, India faces an urban housing shortage of over 28 million households
  • Affordability – Home loan repayment to income ratio decreased from 58% in FY08 to 28% in FY22
  • Upcoming infrastructure – Investment in the country’s infrastructure, which is a key driver of real estate development as well as housing demand, will exceed $1.4 billion by 2027
  • Strong appetite for real estate investment – In most Indian families from the upper middle demographic, real estate accounts for over 40% of investment portfolios

The return of the investor

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

One of the biggest incentives for investors is that house prices have started to rise after remaining stable for more than 4 years. The outlook for capital appreciation is good and rental demand is improving rapidly after the pandemic loosened its grip on the rental housing sector.

Investors are eager to lock in current prices before they rise further. Another reason investors are refocusing on housing is that while the stock market has remained volatile and unpredictable, good quality residential real estate has held its value even during the darkest days of the pandemic.

Investors now perceive housing as a more stable and reliable asset class. They are easily identifiable by the types of questions they ask and their finely honed negotiation techniques. Over the past two months, brokers and developer sales teams have reported that between 20-25% of serious inquiries come from investors.

They are primarily interested in projects from well-known national and local developers who give full assurance on the timely completion of projects and quality of construction and include the best equipment and facilities. If the project is carried out by such a developer, investors are fine with considering properties under construction.

Should you invest?

If you already own a home, the question of whether to buy a second or third property just for rental income and capital appreciation is now relevant. As you ponder this lucrative possibility, remember that rising construction costs will drive prices up even further in the future. It is still possible to lock in real estate prices and mortgage interest rates relatively low.

Take the approach of professional investors who favor properties being built by top-notch builders. They offer you a lower entry point and better future profitability. Moreover, the prices of houses under construction increase organically and, moreover, in parallel with the approach of the completion of the project. Be sure to only enter homes under construction by reputable builders.

We are currently on the cusp of a major growth spurt in the housing sector. So far, demand has not been affected by the gradual increase in the cost of buying houses. Countless Indians will use the next 12-18 months to invest in lucrative housing to secure their financial future.

The return of real estate investors, who will buy all the best options, marks a major turning point for real estate prices. Don’t miss the wave and seize the moment.

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