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.
In Q4 2015-16, Indian real estate continued the downward trend that we observed in our previous post. Even though we are far away from the the massive increases of approximately 20 per cent per annum that we saw in 2011-2013, according to the RBI data, real estate has still not seen an actual fall in prices. The trend is still positive, although it is increasing at a lower rate.
It must be mentioned however 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 have continued to increase. Keeping this in mind, the actual value of price change must be taken with a pinch of salt, but it is useful in showing that the trend in prices is down.
In the larger cities of India, we observe this slow down across the board, with most cities showing sluggish real estate markets. The only exception being Chennai, which has shown an uptick in prices over the last few quarters. Ahmedabad has also shown some resilience, with prices gradually moving upward.
When we start looking at some of the smaller cities, we see that the slowdown in Indian real estate is hitting these places much harder. There has been negative year-on-year changes in cities like Jaipur, Kanpur and Kochi. This probably has to do with the fact that these markets are driven by end users, who may not be buying because the price is still unaffordable, rather than investors who may be buying for price appreciation.
It is surprising that the RBI does not include cities like Pune and Hyderabad in this list. Hopefully in the future they will include the data for these cities and many more. What we can tell for now is that real estate markets are going through a slow down. With excess housing supply in many major metros, this situation is unlikely to change and it may be a while before we see the sector improve meaningfully.
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.