We examine the quarterly House Price Index (HPI) for All India and for major cities that was released by the RBI via the Database on the Indian Economy (DBIE) to gauge trends in the Indian Real Estate market.
Indian real estate is starting to show early signs of bottoming out. Even though the actual change in price is still positive overall, the rate of change has been falling over the last few years implying sluggish markets.
As explained in previous posts, it must be mentioned that the data does not capture the “black” component of real estate prices and may also be shifted upwards due to the fact that ready reckoner rates in cities continue to increase. Keeping this in mind, the actual value of price change must be taken with a pinch of salt, but this exercise is useful in showing the trend in prices in the cities and across the country.
The major metros are starting to show a little bit of divergence when it comes to the change in real estate prices. After many years of slow growth, the Mumbai, Bangalore and Ahmedabad markets are starting to bounce back. Kolkata seems to be stabilising as well. In contrast, Delhi and Chennai are still experiencing falling growth rates.
The smaller cities though are showing a sharp uptick in prices. The bounce back is particularly sharp given that these cities have undergone years of low or negative growth. The only exception here is Lucknow, which is still in a downward trend.
The real estate sector is going through a number of structural changes. After the boom years, the industry has been consolidating for five years now. The government has also introduced a lot of new legislation such as RERA, GST and demonetisation, all with a view to clean up the sector. On the whole this is a very healthy correction and we will likely see a much more formal, transparent and efficient sector in the years to come.
Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.