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CY22 was an exceptional year for Indian residential real estate but there have been concerns on the possible impact of rising interest rates and property prices derailing the residential momentum. However, on the demand front, Mumbai registration data for Aug’23 (10,902 registrations; +27% YoY) continues to indicate strong momentum across a high ticket size market most susceptible to interest rate hikes / price inflation and also impacted by higher stamp duties. The supply situation also continues to be extremely favourable with steadily declining and decadal low unsold inventory (674msf across top 7 cities: Source: Propequity). We further deep-dive into the various markets and map the inventory, absorption and supply trends across cities. Key takeaways – i) All markets (Bangalore, Chennai, MMR, Delhi-NCR, Pune and Kolkata) barring Hyderabad have shown a declining trend in inventory, ii) MMR, Pune and Hyderabad remain some of the best-performing markets with high absorption, and iii) Residential demand in the Delhi-NCR region is largely driven by the INR 15mn+ ticket size or the luxury segment. We remain constructive on the residential cycle, as the combination of i) supply side consolidation, ii) demand revival and iii) calibrated price hikes will lead to a multi-year housing cycle.

* Mumbai property registrations remain strong: In Aug’23, Mumbai recorded healthy property registrations of 10,902 (+27% YoY; +2% MoM) and, as a result, achieved revenue of INR 8.1bn (+29% YoY; down 2% MoM), representing a monthly decadal high (since Aug’13) despite the high interest rates and property prices. Residential registrations account for approximately 80% of the total property registrations with the INR 10mn+ ticket size segment contributing 57% (Link). This upward trend in demand is likely to continue in the festive season

* MMR market holding up despite higher interest rates and ticket sizes: MMR absorption stood at 94msf for 7MCY23 (144msf in CY22; decadal high) and momentum seems to be healthy. The market has seen significant reduction in inventory across ticket sizes and overall unsold inventory stood at less than 14 months (extremely healthy). MMR remains by far the highest ticket size market in the country and limited impact of rising interest rates and price hikes offer a positive read through for other markets. The market has absorbed the effect of calibrated price hikes by developers as well as the impact of rising interest rates. Prices in tier 1 cities have moved up to INR 8,650psf (as on date) from INR 7,790psf in CY22 and INR 7,197psf in CY21.

* Delhi NCR – premium and luxury segments outperforming other segments: Residential demand in the Delhi-NCR region is largely driven by the INR 15mn+ ticket size or the luxury segment. In the INR 10.5mn-30mn segment, despite average prices moving up ~15% YoY in 2QCY23 absorption grew by 29% during the same time period. The lower end of the market (<INR 3.5 mn) seems to have been affected as absorption has gone down compared to CY22. Similar trends (demand weakening in the lower segments) are visible in Hyderabad and Kolkata as well. 

* Top 7 cities on track to surpass CY22 performance: CY22 was an exceptional year and saw 569msf of absorption (CY16-21 average: 343msf; decadal high) and CY23 is also at a similar run rate (387msf in 7MCY23, annualised run rate: 663msf; 17% YoY growth) led by cities like MMR, Pune and Hyderabad. Moreover, launches continued to slightly lag absorption (366msf launched in 7MCY23) resulting in inventory reduction and possible price hikes in 2HFY24.

* Tier 1 developers likely to achieve their targets: With rentals moving up significantly post Covid, the spread between residential rental yields and home loan rates (adjusted for tax benefit) is now the lowest in the last 8-10 years. As a result, housing demand is led by both end-users as well as investors. Going forward, we remain optimistic on tier 1 developers achieving their pre-sales guidance on the back of continued strength in the residential segment.

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