BL interview. Despite current growth, global recessionary trends could impact home buying: MD, Savills India

Despite home prices going up by 5 – 6 per cent, and global recessionary pressures becoming more evident during H2 2022, home buying has continued to grow YoY. It also has rised by 15 - 17 per cent in Jan – Mar period. Demand continues to be there. But the rate of growth looks to be gradually slowing. Especially, as mortgage rates witnessed hikes of 150 basis points and breached the 9 per cent mark.

For the immediate quarter, April – June and for another quarter (July – August) max, we can say there will be a continued uptick in home buying. But in the longer term, with global volatilities still persisting, it might feel the stress.

Office space take-up is witnessing an obvious slowdown. It is quite prominent over the last two quarters. Grade A office space off-take is lower than expected, with global MNCs holding back on commitments or delaying space take-up talks. Job losses have been a cause for alarm in the US. They are not seen in India yet. But, if the economic slowdown trends and high inflation in some nations persist in the long term, it could cause a negative impact in India too. If that happens, there will be hesitancy towards home buying as people would want to conserve cash.

There doesn’t seem to be an easy way out immediately and at least for two quarters we don’t see any quick relief. Inflation levels are yet to peak and expectations are perhaps in the coming quarters, we will see them peak out (globally).

So far, there has been a 5-7 per cent increase in home prices YoY. And perhaps we’ll see a 1-3 per cent climb every quarter depending on location and project positioning. Against this, the input costs are up 15-20 per cent over the last year. So, in actuality, realtors have been quite reasonable in limiting the price hikes so far. The luxury offerings – above ₹1.5 crore (and ₹2 crore plus in Mumbai)- are relatively more insulated against the price hike.

In the affordable segment, there won’t be much change in prices, in the mid – to – mid-premium segments prices will be driven by cost of raw material movement.

Demand, the mid to mid-premium segment has been driving numbers and will continue to do so in FY24.

The rate hikes were relatively gradual, which did not dampen the buying spirit over the last 3-4 quarters. Hence, the RBI rate pause may also not create an added acceleration right now. People had factored in the rate hikes and there was some correction that was expected in the market as mortgage rates moved up. 

Rentals have not seen any downward trend. Capacity creation has remained strong, reflected in vacancy levels of 17-18 per cent. There are global pressures, which are deepening and big corporates are in a wait-and-watch mode. But there can be a lag effect in the rentals, which can show only in long term if the economic pressure persists.

In markets like Mumbai, it is banking, financial service, and insurance (BFSI) that are driving numbers, while in Bengaluru, it is tech and IT. In the NCR region, it is a mix of BFSI and IT & tech. The tech sector has done well. Bengaluru and NCR continue to be the top demand-grossing markets with Chennai following at the third place in Q1 2023.

However, a positive story here is co-working companies taking up quite large spaces in Grade A offices. In Q1 2023, the flexible space segment (co-working) has garnered a 27 per cent share of the overall 14 mn sq ft gross absorption across the top 6 markets. So, MNCs that are holding back on space take-up plans, are opting for co-working or flex-spaces as a probable short – to- mid term alternative.