Demand for homes with a price tag of ₹80-lakh onwards have already seen a 10-15 per cent price rise in specific markets with demand outstripping supply. The segment is generating investor interest, from both second-time home buyers and portfolio investors.

Interestingly, Grade-A developers have seen a faster off-take in inventory, a price rise notwithstanding, while smaller ones struggle despite discounts (in 10-15 per cent range), says Santhosh Kumar, Vice-Chairman at property consultant major Anarock.

Current home demand is “well above” pre-Covid levels. Moreover, a post-Covid consolidation is happening with Grade-A developers buying out stalled projects of smaller ones.

“Even before Omicron hit, larger homes were in demand, typically those that have at least three bedrooms. Developers in certain micro-markets hiked prices by 10-15 per cent (then). Now another 5 per cent rise could happen as inflationary pressures continue on materials like steel, cement, labour charges and so on,” he told BusinessLine.

Peak in 2025

A near 25-30 per cent sequential growth in home sales over the last 6 months notwithstanding, numbers are yet to peak. According to him, numbers will be comparable to 2013-14 levels (the best sales period post Lehman crisis) in “another two to three years”, mostly in 2025.

As against 2003-04 or 2013-14, when housing demand boomed, the heightened interest is being generated by end-users. As a result, buyers are factoring in the cost rise and there isn’t “much of a negative impact visible on customer sentiment side”.

On an average, the demand for larger homes mean sizes have gone up by at least 23-27 per cent.

Demand in tier-2 towns

According to Kumar, apart from the seven big markets – Delhi-NCR, Mumbai-MMR, Chennai, Bengaluru, Kolkata, Hyderabad and Pune – the tier-2 towns are witnessing good demand.

Chandigarh, Ahmedabad, Kochi, Coimbatore, Indore and Bhopal are some of the upcoming cities where real estate, especially activity by Grade A developers, are witnessing heightened interest.

Plotted developments are being looked at in tier-2 towns, while townships are being pushed in tier-I cities.

“For one, a hybrid or work from home culture has seen people go back to these smaller cities and look at investments in real estate. But it will take some time there as issues like land availability, clearances and so on needs to be sorted,” he said.

“As tier-2 markets come on-board, developers go full steam in the larger one. Once the industry’s consolidation phase is over, say in another 2-3 years, we anticipate the housing boom,” Kumar added.

Commercial real estate

On the commercial real estate front, leasing activity has started to witness an increase. It may not be immediate, but lease rentals are expected to firm-up as “back to office becomes the norm”. Rentals will continue to be in the ₹90-₹125 per square feet space range.

“Even at the height of the pandemic people did not vacate that many office spaces or went back on lease signings. If you check some of the numbers the average rental occupancies on premium Grade-A office spaces were better 85-98 per cent,” he said.

However, there continues to be a shortage in supply of Grade-A office spaces.

India is expected to add close to 42 million sq ft of Grade-A office space across the top seven cities. In 2021, 34.3 million sq ft was built and 29.7 million sq ft was absorbed, indicating a vacancy level of nearly 11 per cent.

“It will be Grade-A office spaces that will generate revival of commercial spaces in India. And IT will be the driver, followed by BFSI and consultancy,” Kumar said.

Institutional investor interest

However, institutional investor interest has been generated. Indian real estate investment is giving returns between 6 and 9 per cent, post tax, as against investment in the western world which is around 4 per cent.

Moreover, alternate asset classes like warehousing and data centres have started generating interest too.

“Institutional investors are not just looking to build a portfolio or participate in REITs now. They are also executing investments in companies or bringing in funds that can be invested in multiple portfolios,” he said.

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