High-rise skyline of the property market

India's property market is in a multi-year upcycle since the pandemic, when affordability had reached a new low. A decade of incomes outpacing house prices saw demand shoot up for larger, better-appointed living spaces during WFH. Real estate prices have climbed since then. But demand is being led by the wealth effect of stock market returns as households shifted savings out of stimulus-induced low interest rates on bank deposits. The interest rate cycle has turned, which makes bank deposits attractive again while making housing loans costly. This has, however, had little effect on demand for premium housing where inventory is moving at an astounding pace. At the other end of the market, incentives for affordable housing are keeping demand firm.

Although housing prices are now rising faster than incomes, the wealth effect and subsidies are yet to play out completely. Middle segment of the market, where neither of these forces is particularly strong, could be the first to feel the squeeze of rising house prices. This has been the mainstay of India's property market for decades and deserves policy attention in case stress develops here. Regulatory improvements in real estate have eased supply bottlenecks that caused the previous bust. Increased supply of quality housing stock that is neither in the luxury nor affordable categories should address concerns of the mid-segment buyer.

Housing is a direct beneficiary of GoI's infra push. The property market is now developing spatially beyond its top urban clusters. Housing developers may be able to improve their supply response with state-level improvements in releasing land, facilitating clearances and lowering stamp duties. The construction industry could benefit from more rational GST rates. As the stock of unsold housing inventory tapers off in big cities, housing developers need to be able to improve their delivery time, which is primarily dependent on the municipal administration's sensitivity to demand. State governments should step in to improve these outcomes.