Steel & Cement Squeeze: Can Costs Cloud Real Estate’s Sunny Outlook?

The Indian real estate market, a cornerstone of the nation’s economic landscape, is exhibiting signs of resilience following a recent period of softened demand. While a report by PropTiger, a leading real estate research firm, revealed a 5% decline in housing sales across India’s top 8 cities during the quarter ending September 2024, experts view this as a temporary correction after a period of significant growth.

This sentiment is echoed in the monthly economic review by the Ministry of Finance. The review acknowledges the dip in demand but highlights the market’s strong fundamentals, suggesting a potential rebound on the horizon. “The current tempering is a healthy response to rising prices,” states the review, hinting at a return to sustainable growth in the near future. Industry leaders anticipate a significant boost in activity during the upcoming festive season, traditionally a time for auspicious purchases and investment. Dhruv Agarwala, Group CEO of Housing.com & PropTiger.com, expects heightened activity in the housing market from October to December, fueled by festivals like Navratri and Diwali. Developers are also strategically aligning their supply strategies, with a decline in new unit launches observed. This cautious approach, coupled with anticipated festive season sales and potential interest rate cuts by the Reserve Bank of India (RBI), is expected to improve affordability and reignite buyer interest.

While the residential sector experiences a period of adjustment, the commercial segment presents a contrasting picture. The office space market is witnessing robust growth, with a 66% year-on-year rise in gross leasing of office space across the top eight cities during Q2 FY25 (April to September 2024), according to a report by Cushman & Wakefield, a real estate consultancy firm. This surge marks the second-highest quarterly leasing volume in the sector’s history. Consequently, vacancy rates in these cities have dropped to a 14-quarter low, further underscoring the strong demand for office space.

Despite the positive outlook, the sector is not without its challenges. Rising input costs for steel and cement, along with potential delays due to supply chain disruptions, could impact project timelines and pricing. Industry leaders like Niranjan Hiranandani, Chairman of the Hiranandani Group and NAREDCO (National Real Estate Development Council), acknowledge these concerns but remain optimistic about the long-term prospects.  For many Indians, homeownership represents not just an investment but the realization of a lifelong dream. The prospect of a more affordable and accessible housing market during the festive season brings a sense of hope and excitement to potential buyers.

This emotional connection, coupled with the sector’s robust fundamentals, paints a cautiously optimistic picture for the future of Indian real estate. The Indian real estate market, a vital driver of economic growth and employment generation, appears to be on the cusp of a rebound. While a watchful eye needs to be kept on rising input costs, the festive season and potential policy changes hold the promise of reigniting buyer interest and propelling the sector forward.