Residential demand soars 41% in top 8 cities in Q1 2024—What's driving the trend?

Residential demand surges: The real estate market in India's top eight cities witnessed a surge in residential demand during the first quarter of 2024. Sales outpaced new supply with a 41 per cent increase in demand compared to the previous year, according to a report by Housing.com. Despite this surge in demand, new supply decreased by 30 per cent compared to the same period in 2023.

What drove the recent surge?

Several factors contributed to this trend. Firstly, the shift in work models towards hybrid and full-time remote work arrangements led to increased demand for residential properties as people sought more spacious and comfortable living spaces. Additionally, the pause in the repo rate helped keep interest rates stable, further supporting the market momentum.

Interestingly, there was a notable increase in sales of high-value properties, particularly larger configurations, indicating a shift in buyer preferences towards more spacious accommodations.

Developers responded to the surge in demand by strategically releasing pent-up supply and launching new projects at a fast pace. This strategy aimed to capitalise on the surge in homebuyer sentiment driven by factors such as lower interest rates and a desire for more spacious living.

What is the impact of reduced supply?

Despite the decrease in new supply being interpreted negatively by some, it actually signals the property market's movement towards achieving equilibrium between supply and demand. Developers are actively positioning themselves across the top eight cities, and it is expected that the next wave of new supply will enter the market in the latter half of the year.

In terms of buyer preferences, security and convenience remain paramount, with gated communities offering amenities within secure perimeters experiencing strong demand. Ready-to-move-in properties have become increasingly popular, driven by the desire for faster occupancy and reduced risk.

Moreover, branded developers with a strong track record in delivery and quality are witnessing the highest demand, highlighting the growing importance of developer credibility in the market.

What's the situation in key property markets?

The surge in demand has also led to an upward trend in property prices, particularly in key micro markets near commercial hubs such as Gurugram, Bengaluru, and Hyderabad, where weighted average prices saw a significant 20 per cent surge. This increase in property prices, coupled with strong sales and rising input costs, has fuelled investor interest in the real estate market, marking a turnaround after a period of sluggish growth.

New supply trends shift

Amidst a backdrop of evolving consumer preferences and market conditions, the residential offerings experienced notable changes, reflecting a departure from pre-pandemic trends. Approximately 1 lakh new units entered the market across the top eight cities during Q1 2024, marking a substantial decline in momentum compared to previous years. This trend is underscored by a 30 per cent YoY decrease in new supply.

Analysing the market segmentations reveals a striking transformation. The low-to-mid segment, characterised by properties below the Rs 45 lakh price bracket, saw its share plummet to 21 per cent from the pre-pandemic level of 50 per cent in Q1 2019. Conversely, properties priced at Rs 1 crore and above surged to command a 36 per cent share in the current quarter, a rise from a mere 14 per cent in 2019.

Where did maximum new supply emerge?

Mumbai, Pune, and Hyderabad emerged as the frontrunners in new supply, collectively contributing 75 per cent share to the overall market. Micro market trends highlight key areas such as Hinjewadi in Pune, Thane West in Mumbai, and Patancheru in Hyderabad, which witnessed maximum new supply during the period.

Developers prioritised 2 BHK configurations, constituting 39 per cent of the total new supply, closely followed by 3 BHK configurations at 28 per cent. However, there is a notable trend towards larger configurations, with high-intent homebuyer searches predominantly focused on 3 BHK and above, indicating a growing interest in upscale living.

What does the future hold?

The consumer sentiment survey highlights a demand for quality projects, with 58 per cent of homebuyers expressing a preference for developers with a proven track record in project delivery and quality assurance.

Looking ahead, the market anticipates continued emphasis on larger configurations and amenities aligned with evolving consumer preferences. These include healthcare facilities, safety measures, and ample open spaces, reflecting a broader shift towards holistic living experiences.