House prices are expected to rise just 1 per cent on average this year and 2 per cent in 2020, the lowest median predictions since polling began for the two years, and well below the current 3.15 per cent rate of consumer price inflation.
A majority of respondents in the August 13-27 survey said risks to those already-modest predictions were skewed more to the downside.
That comes despite the Reserve Bank of India having slashed its repo rate by 110 basis points so far this year, to 5.40 per cent. It is also expected to cut it further to 5.15 per cent over the coming months to revive a slowing economy.
However, much of that easing has not reached borrowers as banking and non-banking financial companies (NBFCs) are still grappling with very large bad loans on their balance sheets, which has led to a liquidity crunch.
The government’s own assessment is that the lack of available credit is the worst in over 70 years.
“It is my expectation that we will continue to see more defaults over the next few years as developers are still facing liquidity issues due to slow sales and lack of refinancing options,” said Siddhart Goel, principal consultant and founder at ARAIS Consulting.
“Even the recent rate cuts will not have a positive impact on the situation as easing by the Reserve Bank of India (is) seldom passed on by the banks to the loan seekers and never in the same quantum.”
Indeed, nearly three-fourths of 18 analysts who answered an additional question said the RBI’s interest rate cuts this year would have no impact on the housing market. Five said it would be stimulative and none said very stimulative.
All 18 analysts who answered a separate question unanimously said the impact of the liquidity crunch would last for at least another six months and would either be severe or very severe.
A continued deceleration in housing activity will have serious repercussions for the overall economy as the real estate market provides jobs to large swathes of people migrating from rural areas to cities looking for employment.