Geopolitical Tensions Could Slow Realty Sales and Hit Luxury Market

Rising Uncertainty in Northern Markets

Recent geopolitical tensions in a key region have begun to cast a shadow over the real estate and tourism sectors, particularly impacting northern metropolitan markets. According to Prashant Thakur, Head of Research at renowned real estate consultancy Anarock, if the conflict escalates further, residential property sales could decline by 5-10% in the short term. This potential downturn comes at a time when the sector was gradually recovering from previous economic disruptions.

Market Reaction: Realty and Tourism Indices Slide

Financial markets have already reflected investor caution. The Nifty Realty index, which tracks the top residential developers, closed 2.38% lower, with significant declines in major companies such as Macrotech Developers Ltd, DLF Ltd, and Prestige Estates Projects Ltd. The broader Nifty 50 index also fell by 1.1%, mirroring concerns over the escalating geopolitical situation.

Tourism-related sectors have also been affected. The Nifty India Tourism index dropped 1.27%, led by declines in Indian Hotels Company Ltd, Lemon Tree Hotels Ltd, and EIH Ltd. Hotel occupancies in northern regions are expected to fall by 10-15% as travelers postpone plans amid uncertainty.

Construction Costs and Supply Chain Pressures

The conflict has also driven up construction costs, especially for materials like cement and steel. “Prices are likely to remain elevated over the medium term due to increased demand from the defense sector, unless government intervention occurs,” said Thakur. These rising costs may delay project launches and squeeze developer margins, adding further pressure on the market.

Buyer and Investor Sentiment

Conflict and uncertainty typically stall construction activity and dampen confidence among buyers and investors. “Aspiring homebuyers tend to put decisions on hold, retailers pause expansion plans, and tourists defer travel,” Thakur explained. Historically, real estate markets adapt and pause before eventually bouncing back.

• Luxury housing is expected to be the first segment to experience a slowdown, as high-net-worth buyers often delay purchases during uncertain times.
• Conversely, demand for mid-income housing is likely to recover more quickly once normalcy returns.

Capital Values and Developer Resilience

Despite short-term challenges, significant drops in housing capital values are unlikely unless the conflict extends beyond a fiscal year. The market today is dominated by large, financially strong developers with substantial holding power, supported by well-capitalized banks. This resilience provides a buffer against prolonged downturns.

Thakur noted, “There may be a pause on price hikes, followed by sharp increases next year due to higher construction costs.” Buyers can expect stable prices in the near term, but rising costs may push prices upward once the situation stabilizes.

Tourism and Hospitality Impact

The hospitality sector is also facing immediate challenges. Hotel occupancies in affected northern regions are expected to decline by 10-15%, reflecting the broader impact on tourism. The recent drop in tourism indices highlights market concerns about short-term disruptions.

Lessons from the Past: Market Resilience

Historically, markets have rebounded from geopolitical shocks. While conflicts trigger temporary corrections, real estate and equity markets typically recover as stability is restored. Strong domestic demand and urbanization trends continue to support long-term growth.

Investors and homebuyers are advised to remain focused on fundamentals and avoid panic decisions, as the current market structure is more robust than in previous decades.

Looking Ahead: Navigating Uncertainty

The duration and severity of geopolitical tensions will determine the extent of impact on real estate and tourism. A swift resolution could limit damage, while prolonged instability may deepen slowdowns, especially in luxury and hospitality sectors.

Developers, policymakers, and investors must stay agile, with potential government measures to stabilize costs and restore confidence playing a critical role.