During general elections, the real estate sector tends to slow down; there are fewer launches, and investors prefer a ‘wait and see’ approach. However, end-users may not be directly impacted, as they may decide to purchase a house when they find the right project in the market and the best deal that suits their pocket.
When uncertainty surrounds election results, real estate investors become cautious and anticipate potential policy changes. According to experts, there are fewer transactions and new launches during elections, and investors’ decisions may be influenced by market sentiment, share market performance, and even the impact of exit polls on markets.
Elections 2019: The Impact on the Real Estate Market
During its first term (2014), the government accelerated infrastructure development by implementing major policy overhauls such as DeMo, RERA, and GST, amending old Acts such as the Insolvency and Bankruptcy Code and the Benami Transactions (Prohibition) Act, and launching schemes such as 100 Smart Cities, Housing for All by 2022, Make in India, and AMRUT Cities. According to experts, the last five years (beginning in 2019) have seen the overall impact of their implementation on the real estate sector.
Also, during the 2019 elections, the primary and secondary markets slowed, and aspiring buyers and investors chose to wait and see. The momentum increased following the results, and buyers and investors were reassured of the government’s commitment to building new infrastructure.
It should be noted that India’s residential real estate sector experienced a significant slowdown from 2016 to 2019. The major market shake-up caused by policy reforms between 2016 and 2017 led to the NBFC crisis after the IL&FS issue in 2018. This created significant turmoil in the residential real estate industry.
According to Anarock Research, enough evidence suggests that housing sales and new launches may peak again in 2024.
Price trends for the last three elections
Examining price trends over the last three election years reveals that 2014 was better than 2019. According to ANAROCK data, average prices in the top 7 cities increased by over 6% in 2014, rising from Rs 4,895 per sq. ft. in 2013 to Rs 5,168 per sq. ft. In 2019, average prices increased by only 1% per year, from Rs 5,551 per sq. ft. in 2018 to Rs 5,588 in 2019.
Impact on Homebuyers
While it is true that many prospective homebuyers are waiting for the elections to be over before making a purchase, experts point out that end-users will be unaffected by any such factor and will buy a home as soon as they find the right product on the market.
Only investors will wait and see. Elections affect market sentiment but have little impact on end users. So, suppose a buyer finds a property that is populated. In that case, infrastructure has already developed, the price is right, and all of the fundamentals are in place, election or no election, he is obligated to buy it,” said experts.
According to Anuj Puri, Chairman of the ANAROCK Group, elections frequently signal the end of fence-sitting and a confident move to ‘buy’ positions for homebuyers.
The elections may impact markets where investors are the majority and speculators dominate.
Investors who intend to make ‘aggressive’ real estate purchases may prefer a ‘wait and watch’ strategy, but homebuyers will continue to buy based on their needs. According to experts, an investor’s decision today may be influenced by market sentiment or the ‘feel good’ factor, capital market performance, and whether the new government’s emphasis on infrastructure development will continue.
Elections also have an impact on builders. “During elections, the number of new launch announcements is often reduced because approvals may not be received due to the code of conduct. According to an unnamed developer, several projects in multiple categories, including mid-segment, affordable, and luxury, could be launched in the coming quarter.
How will the election results affect the real estate market?
A healthy absorption-to-supply ratio of 1.02 in 2022 rose to 1.17 in Q1 2024. According to the data shared by Anarock, controlled launches, and increasing sales, particularly in the high-end and luxury segments, have resulted in a drop in unsold inventory and a rise in prices.
“The residential real estate segment will probably reach a new high in 2024. This also suggests that home buyers are optimistic about the real estate market’s performance,” Puri explained.
Will there be an increase in the number of new launches after the 2024 elections?
In recent quarters, the residential real estate market in the top seven cities has set several benchmarks. Quarterly launches in these cities used to total more than 80,000 units per quarter in 2022. In recent quarters, the residential real estate market in the top seven cities has set several benchmarks. Quarterly launches in these cities used more than 80,000 units per quarter in 2022. However, it passed the 1 lakh unit mark last year, with launches exceeding 1 lakh in the previous five quarters. According to Anarock Research data, major developers have already acquired land for future development at a rate that is 125% higher than in 2021.
As of March 2024, unsold inventory had dropped to less than 6 lakh units, with an inventory overhang of only 14 months, down from 21 months a year earlier.
Will these new launches be in the middle, top, or affordable segments?
Launches in the mid-segment and higher-end have dominated accounting for more than 55% of the total supply. It is also noticeable that the share of luxury and ultra-luxury segments is increasing, accounting for nearly 25% of the total supply as of Q1 2024. “The new launches will primarily target these segments,” Puri explained.
Signature Global (India) Limited’s founder and chairman, Pradeep Kumar Aggarwal, believes that future launches will span all segments.
Will future housing prices be stable or increase?
Reducing unsold inventory, sales exceeding supply, and rising input costs are the key ingredients that will likely drive prices in the future. “We have already seen annual price increases ranging from 10% to 32% in various cities,” Puri said.
Should homebuyers decide whether to buy now or wait?
Unless homebuyers are looking for a luxury or high-end product in their preferred location, built by a preferred builder, or with a specific layout, view, or orientation, the average homebuyer should carefully evaluate the available options and close the deal by negotiating for the best offer.
Impact on Commercial Real Estate
The country’s expected GDP growth of $3.5 trillion to $7 trillion by 2030 can be sustained without significant changes in circumstances. “This sustained economic expansion will increase India’s appeal to global corporations, cementing its position as a prominent hub for establishing Global Capability Centers (GCC) and manufacturing facilities. Knight Frank India Chairman and Managing Director Shishir Baijal said growth significantly impacts the construction sector and improves employability.
Rental housing and affordable housing
A persistent decline in affordable housing demand is one of Baijal’s hopes for the new government. Keeping interest rates low and other enabling conditions can help achieve this goal. “We hope the government will take a closer look at the policy for affordable housing and provide more incentives to the supply side,” he told HT Digital.