Knight Frank India Predicts Price Corrections in Premium Real Estate, While Affordable Housing Holds Steady

In a significant development for the real estate market Gulam Zia, Senior Executive Director at Knight Frank India, highlighted a potential price correction in the premium segment of Indian real estate, while the affordable housing sector remains more stable. Developers, responding to more favorable margins and a higher sales velocity, have shifted their focus toward high-end properties. However, Zia warns that this could have unintended consequences, particularly in overheated markets like Mumbai and NCR.

Zia pointed out that the price surge in these areas has been disproportionate. He cautioned that if developers continue to inflate prices without considering market realities, they might face a significant backlash. This concern is already materializing, with the sector approaching a critical juncture. According to Zia, the price rise over the last two years is starting to taper off, signaling an end to rapid price growth in the high-end market.

As affordability becomes an increasing challenge, Zia believes developers may soon recognize that maintaining sales momentum is more important than keeping prices elevated. He expects prices in the luxury market to cool down slightly, reflecting a more sustainable pace.

Record-Breaking Sales Despite Affordability Concerns

Despite these concerns, the real estate market remains robust. The third quarter of 2024 recorded the highest quarterly sales in a year, with over 87,000 units sold across major markets, excluding a 7% dip in NCR. Zia noted a 10% year-on-year growth in residential sales, marking the best performance in over a decade. He compared it to 2012 when 3.5 lakh apartments were sold, saying that 2024 is poised to either match or exceed this record.

Yet, Zia emphasizes that this impressive performance is largely driven by the upper end of the market. The mid- to lower-end segments, however, have underperformed. After COVID-19, the lowest tier of the housing market faced severe distress, further compounded by a sharp increase in home loan interest rates, which dampened demand.

Shift in Focus Towards Luxury Real Estate

On the supply side, developers have gravitated toward the luxury market due to better margins and faster sales. As a result, most transactions now occur in the higher price brackets, often exceeding ₹1 crore, raising concerns about the sustainability of this trend. However, there’s a silver lining for the lower-end housing segment.

Zia believes that the recent launch of Pradhan Mantri Awas Yojana 2.0, which aims to reduce interest rates by 150 to 200 basis points for lower-income homebuyers, could provide a much-needed boost. While this impact isn’t yet visible in market data, Zia expects it to catalyze transaction growth in the lower-end market over the next few months.

Future Outlook: Stability Amid Shifting Market Dynamics

Looking ahead, Zia remains optimistic about the overall strength of the Indian real estate market. He predicts that while activity in the luxury segment may slow down, the affordable housing sector will gain momentum, driven by government incentives and improved affordability. This dual dynamic should keep the market strong for at least the next year or two.

Even as one segment begins to cool off, another is just starting to pick up. The evolving trends indicate that the real estate sector is unlikely to lose its momentum anytime soon, especially as developers begin to recalibrate their strategies to meet market demand.