The Indian real estate sector has been through the boom to gloom in the last 25 years. What remained common through this journey was that this sector, though accounting for 5 per cent of GDP and being the second biggest employing sector, is riddled with a lack of transparency and trust. With the pandemic at play, the industry now aims for real change by bringing in new transparency tools to aid and influence the decision of home buyers and investors.

The pandemic has made us realise the importance of real-time indices to help track the economic impact. Without measurement, policy guidelines are like shooting in the dark.

The academia-industry partnership between the Indian School of Business – Srini Raju Centre for IT and Networked Economic (SRITNE-ISB) and led to the creation of a residential Housing Price Index , which can provide granular data across eight major real estate markets in the country and help track the real-estate market.

In India, litigations against some prominent developers, structural reforms like demonetisation, RERA (Real Estate Regulation Act), GST (Goods and Services Tax), and liquidity crisis triggered by NBFCs (Non-Banking Financial Companies) have hurt the housing market in the last few years. The start of the pandemic in March 2020 came as a rude shock for the already reeling sector which bottomed out demand and supply to historic lows giving rise to a fresh new story for the Indian housing sector.

Global studies have highlighted India’s potential in the housing segment. Oxford Economics has cited that New Delhi-NCR, Mumbai, Hyderabad and Pune are among the top 50 global cities that will witness the fastest population growth by 2050. The information provided by the Housing Price Index will aid the growth in this sector by enabling the much-needed transparency on the market.

Housing Price Index

The index is based on offline surveys and data collected by from nearly 80,000 property brokers and developers spread across 881 neighbourhoods in eight cities. Finally, all the indices are benchmarked against the first quarter values observed in 2017, which take a value of 100.

From the aggregate price index for All India, it is observed that cumulative prices have grown 15 per cent between 2017-20. It is noteworthy that though decadal growth was already slow, price growth plummeted since mid-2019. Since the lockdown, aggregated prices rose marginally. The prices increased by one per cent during 2020 and plateaued thereafter, and the growth is yet to return to the pre-pandemic levels.

According to the quantity index, sales fell drastically in March 2020 after the ‘Great lockdown’ was declared in India. We expected that housing sales volume would revive after the first wave. However, the second wave of the pandemic proved to be more devastating and exacerbated the realty market further, both in terms of price and sales when compared to the first wave set in March of 2020. While prices have plateaued now, instead of an uptick on base effect that was witnessed during the first wave, the number of housing units sold in the second quarter of 2021 nosedived — recording an all-time low.

While many had expected to see a V-shaped or even a W-shaped recovery for the housing sector, so far, the prospects remain low. Going ahead, housing sales are expected to hover in close ranges in the coming quarters. With only 17 per cent of the country being partially vaccinated, the pace of vaccination will have a huge bearing on the sentiments of the market which in turn would drive demand.

But, what are the potential reasons behind this slow recovery of the housing sector from the Covid pandemic? Though there is a significant pent-up demand in the market, the offtake has not been consequential due to various reasons such as infrastructure development delays of some major projects, litigations, delay in deliveries and policy interventions among others that has dried up juice for the investors and taken the sheen off the sector.

Trust deficit

All these factors have created a trust deficit amongst homebuyers and investors. Coupled with this, it is likely that the fall in disposable income of households and an uncertainty regards income stability for the future amidst job losses and salary cuts during the subsequent second wave of the pandemic has kept demand from recovering to pre-pandemic levels.

In cost terms though, despite the nominal (listed) prices of residential units staying flat, prices have gone down in actual terms . Since inflation in the last year has been around six per cent, and while housing prices remained stagnant in this period, it implie s: the real cost of owning a house has gone down in this pandemic.

Any reversal in the overall housing market would now need an external trigger to revive demand back to pre-pandemic levels. It would be important for policymakers to relax taxation policies to help make housing affordable and boost demand for targeted units by adopting specific policy initiatives, like hiking interest subvention, or allowing further tax exemptions on housing loans.

Some steps have already been taken in this direction, and the HPI would become one more tool to facilitate policymakers to help fulfil Government of India’s ‘Housing for all by 2022’ ambition.

Sood is Director Research at and Tomar is Professor of Economics at the Indian School of Business