Recession fears may find early victims in Indian real estate

Recession fears may find their early victims in India’s real estate sector. Stakeholder sentiments for Indian realty are falling fast, according to a pan-industry finding, released on Thursday.

The Future Sentiment Score, measured by the National Real Estate Council (Naredco), has decreased from 62 earlier this year to 57 for the third quarter of 2022. Current sentiments aren’t faring too well either, dropping from 62 to 61.

But the real worry is the distinct fall of the market, indicated by the Future Sentiment Score, would mean that the uncertain economic scenario playing out globally is coming home to roost. The score remaining above 50 indicates the prevalence of positive home-buying sentiment in the market.

To put it more precisely, future sentiments are now as low as during the peak of the pandemic — with fears of it dropping below 50 if inflation persists and interest rates continue their upward spiral. Increased geopolitical risks due to the Russia-Ukraine war dragging on will also have an adverse effect on sales sentiments.

The latest dip in score comes after market confidence had improved to as much as 75 at the beginning of this year.

The fears are already materialising in the property market, with the volume of home sales and new residential project launches declining over the past few months. They are likely to shrink further towards the end of the year.

“This is not surprising as the impact of the cumulative repo rate hike of 190 basis points is yet to be passed on fully to home buyers; the festive period discounts on home loans will no longer be available after October 2022, and the geopolitical tensions and inflationary risks will continue to persist in the foreseeable future,” according to a statement issued by Naredco.

Worse, more repo rate hikes, which will proportionately lead to higher interest rates on loans, are likely as early as next week, when RBI will re-look at the rates again.

"High inflation, tightening monetary policy measures, high rise in prices of raw materials, and an adjusted economic growth forecast is the main reason why sentiment towards real estate has taken a hit,” said Avneesh Sood, director of Eros Group, a leading real estate company.

“Also, the decrease in sentiment is in line with other economic indicators, such as the slowdown in home sales and the rise in foreclosures,” he said.

However, there are expectations that India and its realty sector could become the outlier to the whole recession fear gripping the world at large. “Despite the retardation in the growth pace, India remains as the highest GDP growth in the larger economies,” pointed out Shishir Baijal, chairman and managing director of Knight Frank India, the realty consultancy which did the sentiment survey along with Naredco, adding, “The real estate sector over the past few quarters continues to be strong.”