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Improved affordability has supported recovery in housing demand with y-o-y sales decline getting limited to 7 per cent in Q3 FY2021, according to ICRA.
The government’s initiatives on stamp duty waivers and flexible payment schemes, discounts by developers, and low interest rates have resulted in improved affordability, which has stimulated housing demand.
Housing sales volumes, which had declined by 62 per cent y-o-y in Q1 FY2021, bounced back considerably in subsequent quarters, with a q-o-q growth of 60 per cent in Q2 FY2021 and a further q-o-q growth of 53 per cent in Q3 FY2021, limiting the y-o-y de-growth to 7 per cent in Q3 FY2021
Shubham Jain, Senior Vice-President and Group Head at ICRA, said: “While the increase in GDP per capita has outstripped the increase in housing prices — which has resulted in some improvement in affordability over the years — overall affordability remains low, with an average house estimated to cost around 44 times the GDP per capita in FY2021. In recent quarters, though, reduced home loan rates, attractive payment schemes/discounts and reduction of stamp duties in certain key states on the back of Covid-19, have significantly brought down housing costs and stimulated housing demand.”
Repo-linked lending rate for home loans have touched a historical low, with the rates dropping below 7%.
Focus on affordability
“A focussed attempt to address affordability through reduced housing costs for the home-buyer would allow for the recent demand uptick to continue, and thereby enable the recovery of housing demand to pre-Covid levels within FY2022. Continued measures by the Central and State governments would go a long way in ensuring this. With the stamp duty reduction having been brought into effect only by Maharashtra and Karnataka thus far, though, other regions may also need to implement similar incentives for housing demand to recover nationwide,” Jain said.
There is expectation that the upcoming Budget may also add a stimulus by increasing income tax deductions and relaxing some of the caps currently applied.
“Overall, reasonably priced inventory at advanced stages of construction is likely to be preferred, although attractive payment schemes by developers would also underpin demand for under-construction inventory. Developers would need to focus on aligning products with market demand, especially in terms of price.”
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