The Indian residential market has been on a steep recovery path since the pandemic, with positive homebuyer sentiments and a supportive economic environment driving market demand to successive highs in subsequent years. Sales volumes in the primary market have grown at an extremely healthy annualized rate of 29% since 2020, culminating in a 10-year high in 2023. Despite global economic challenges such as rising inflation and monetary policy tightening, the Indian central bank's skillful handling of policy rates effectively curtailed inflation below its upper tolerance limit of 6% in H2 2023 without compromising economic growth. This has allowed India to sustain its standing as the fastest-growing large economy with a stable interest rate outlook at the end of 2023.
Q1 2024 Residential Market Performance
The residential market has sustained its momentum into 2024, with sales growing at 9% YoY in Q1 2024. A total of 86,345 units were sold, a level exceeded only in Q4 2023 over the past six years. Sales grew across all markets in YoY terms, except for Bengaluru, which saw a marginal dip of 2% YoT. Mumbai led with the highest sales volume and YoY growth, with 23,743 units sold, reflecting a 17% increase compared to the previous year. This growth was fueled primarily by a 259% spike in the sales of units priced over INR 10 million compared to Q1 2023.
Trends in Residential Development and Pricing
The steady growth in demand has also put residential development into overdrive, with the volume of units launched exceeding that of sales for the past six quarters. Kolkata saw the highest growth in units launched at 89% YoY, with 6,021 units coming online—a record high for the market.
Consistent with the upward trend seen in the past 11 quarters, the share of sales in the INR 10 million and above ticket-size grew significantly to 40% in Q1 2024 compared to 29% a year ago. The demand for larger living spaces and an upgraded lifestyle, sparked during the pandemic, continues to fuel this segment. Sales in this category have grown by 51% YoY, becoming the primary driver for overall sales growth during the quarter. In contrast, sales in the INR 5-10 million and under INR 5 million categories have dropped by 10% and 6% YoY respectively, as homebuyers shifted focus to premium-priced properties.
Market Health and Unsold Inventory
While the drop in mid-segment sales can be viewed as a normal correction within a longer-term upward trend, the deceleration in the quarterly sales of units priced under INR 5 million has sustained for the past nine consecutive quarters, remaining the only segment not showing growth. Increasing prices, higher home loan rates, and the adverse impact of the pandemic on homebuyers in this segment have weighed on demand.
Price levels have grown in tandem with demand across all markets in YoY terms. Even in sequential terms, prices have held steady or grown in all markets. Hyderabad saw the most significant rise at 13% YoY as focus increasingly shifted towards the development of premium high-rise properties.
Homebuyers have shown a preference for ready or near-ready inventory to minimize completion risks seen in past periods. However, heightened demand over the past few quarters has depleted older inventory stock, leading consumers to increasingly acquire newly launched properties at relatively lower prices. This trend is reflected in the average age of inventory decreasing to 15.9 quarters in Q1 2024 from 16.7 quarters a year ago. The unsold inventory level has increased by 4% YoY as fresh development activity has intensified. However, this must be read in conjunction with the sales momentum to better assess market health.
The Quarters to Sell (QTS) level, representing the number of quarters required for existing unsold inventory to be consumed at the current sales rate, has improved to 5.9 quarters from 6.7 quarters a year ago. This signifies that overall market traction has improved despite the increase in unsold inventory levels.
Office Market Insights
The office market also exhibited strong performance in Q1 2024. The demand for office spaces remained robust, particularly from India-facing businesses and Global Capability Centers (GCCs). Bengaluru and Hyderabad accounted for 75% of all GCC transactions during the quarter, reflecting the occupier's long-term strategic interest in Indian consumer markets and high-quality human resources.
Transaction volumes have grown, and rental levels have continued to stabilize or grow YoY and sequentially across all markets in Q1 2024. Rental levels in larger office markets like Bengaluru, Mumbai, and NCR grew by 5%, 4%, and 4% YoY respectively. This marks the seventh consecutive quarter where YoY rent growth has been stable or positive across all markets.
Conclusion
Q1 2024 has set a promising tone for India's real estate sector, with the residential and office markets exhibiting strong performance and positive sentiment. As India continues on its path of economic growth, the real estate sector stands as a beacon of opportunity, offering avenues for investment, expansion, and prosperity in the years to come.
Source: Knight Frank Research