Residential real estate sales in Delhi-NCR and other parts of northern India could drop by 5-10 per cent in the short-term if the ongoing conflict between India and Pakistan broadens, according to Prashant Thakur, head of research at real estate consultancy Anarock.
Additionally, cement and steel prices are likely to be elevated over the medium-term due to high demand from the defence sector, unless the government makes an intervention, Thakur said.
On Friday, the Nifty Realty index comprising India’s top 10 residential developers closed 2.38 per cent lower at 823.8, led by Raymond Ltd (-4.9 per cent), Macrotech Developers Ltd (-3.7 per cent), DLF Ltd (-2.7 per cent), and Prestige Estates Projects Ltd (-1.8 per cent). The broader Nifty 50 index fell by 1.1 per cent, following concerns of escalation after Pakistan launched drones and other munitions along India’s western border late Thursday.
“Wars also stall construction and dampen end-user and investor confidence. Aspiring homebuyers put decisions on hold. Retailers put a brake on their expansion plans, and tourists postpone their travel plans. Real estate markets adapt, pause, and then bounce back,” Prashant Thakur said in a note.
A potential reduction in residential absorption by 5-10 per cent in case of further escalation is likely to hit the luxury market first. “Luxury housing buyers tend to delay purchases in periods of uncertainty. Demand for mid-income housing will be the first to recover once normalcy is restored,” according to Thakur.
With respect to housing capital values, Thakur does not foresee any significant drop, “unless hostilities stretch longer than one fiscal year”.
“Today’s market is dominated by large, listed and financially robust developers who do not carry excessive leverage. This gives them prolonged ‘holding power’, and the major banks also are well-capitalised. There may be a pause on price hikes, followed by a sharp hike in prices on account of higher construction costs next year,” he said.
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The hospitality real estate sector and tourism more generally will also be affected over the short-term, with hotel occupancies in north India falling anywhere between 10-15 per cent, Thakur said.
The Nifty India Tourism index closed 1.27 per cent lower on Friday, led by Indian Hotels Company Ltd (-3.71 per cent), Lemon Tree Hotels Ltd (-2.51 per cent), and EIH Ltd (-2.44 per cent).
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