Affordable Housing Market Eclipsed By Premium And Mid-Segment Homes In India: Knight Frank Report

Premium and mid-segment homes in India saw a rise in sales, eclipsing affordable residential units in the first half of 2023, according to a new report by real estate consultancy Knight Frank India. The period also witnessed the second-highest half-yearly residential sales volume in nearly a decade.

The residential sector sold 1,56,640 units between January and June 2023, marginally lower by 1% YoY but 1.7% higher compared to the second half of 2022, the report, India Real Estate: Residential and Office Market H1 - 2023, said.

Sales of homes in the premium segment, worth Rs 1 crore, grew from 25% of the total sales in the first half (H1) of 2022, to 30% in H1 2023. This can be attributed to the rising prices and the homebuyers' need to upgrade to larger living spaces with better amenities. Notably, the share of homes in the Rs 50 lakh to Rs 1 Crore segment overtook that of the affordable home segment costing below Rs 50 lakh. The percentage of sales in the mid-segment category grew from 35% in H1 2022 to 38% in H1 2023, while the affordable segment saw a dip from 40% in H1 2022 to 32% in H1 2023.

"Residential sales have been strong in most markets during the first half of 2023. The main drivers of market momentum are mid and premium segment homebuyers, who possess both the desire and financial capability to purchase a home," said Shishir Baijal, Chairman and Managing Director of Knight Frank India. "On the other hand, the fallout of headwinds has been the affordable housing segment which has seen deceleration in its volume as well as market share decline significantly," he added.

While low-interest rates and comparatively low residential prices sparked the revival in demand, the residential sales level sustained even after interest rates rose. New launches saw a growth of 8% YoY, and accounted for 1,73,364 units.

"For the mid and premium segment, it is interesting to note that demand remained robust despite the increase in home loan rates during the first few months of the year, which highlights the enduring strength of the market," Baijal said.

In terms of sales volume, Mumbai saw the highest sales among the top eight markets, accounting for 26% of the total sales. NCR, Bengaluru, and Pune followed.

Hyderabad saw the highest rise in residential prices, which grew by 10% YoY. Mumbai saw a 6% rise YoY, while Bengaluru and NCR saw prices rise by 5% YoY each. Prices across all markets rose YoY for the second time since the second half of 2015.

Knight Frank India remains optimistic about growth in the residential sector. "With a promising pipeline of new project launches and high consumer enthusiasm, we anticipate that market traction will continue throughout the remainder of the year," Baijal said.

Real Estate Office Market

Demand for office space rose by 3% YoY in the first half of 2023, the report noted. Rental values were stable or strengthened across the top 8 markets, growing in the range of 1% to 3% for most markets. However, rents in Kolkata have grown by 10% YoY due to limited supply coming up since the pandemic hit in the first half of 2020.

Office space vacancy reduced in most markets. Further, India-facing businesses, which have been gaining traction in recent times as growth capital is increasingly finding its way into the country, accounted for 35% of office space volume. Flex spaces accounted for 26%, global capability centres at 25%, and third-party IT services at 14% of the total volume transacted in H1 2023.

While office space demand has remained extremely resilient, the supply volumes have dropped approximately 25% YoY in H1 2023. The comparatively lower 18 million square feet delivered during the period has pulled down vacancy from 17% in H1 2022 to the 16.4% currently. Bengaluru and NCR accounted for 57% of the total space delivered during H1 2023.

"The segment exhibited consistent growth numbers, standing out from the rest as the Indian office market was less affected by the remote working phenomenon," Baijal noted.