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Three key factors impact real estate business cycles: market sentiment, wealth perception, and disposable income. If the market sentiment is positive, disposable income is rising and wealth is appreciating, then its a shoo-in and we would be witnessing a boom. If two are positive, the market stays stable, but with only one, challenges arise. India's housing market saw record sales in H1 2024, but early 2025 faces economic uncertainties. A stock market downturn has eroded wealth and weakened confidence, signalling bearish sentiment. While tax incentives and repo rate cuts support home purchases, only one of the three key factors is in the green, suggesting that real estate demand may remain sluggish until there is an improvement in market stability and financial confidence.
The Indian housing market has had a great year. In H1 2024, residential sales in India's top eight markets reached an 11-year high, with over 1,73,000 units sold. Mumbai, Delhi NCR and Bengaluru led in sales volumes with units priced over INR 10 million accounting for over 41 percent of total sales. The recent regulatory changes brought about by the Union Budget and repo rate reduction are being viewed by many as added catalysts to the real estate market. Advertisement
The socio-economic and geo-political environment of a country or state has a profound impact on the existing market sentiment. Generally speaking, most people do not want to catch a falling knife. If the current environment is unstable they are likely to delay big-ticket purchases such as real estate, irrespective of their current wealth or income. In the 1990s, the U.S. Army coined the acronym VUCA (volatility, uncertainty, complexity and ambiguity) to describe such uncertain environments. This is usually a result of one or more of the following factors; regime changes, political unrest, communal tensions, citizen protests, increased tariffs, threats of war, technological innovations and so on.
The second important factor that influences a home-buying decision is an individual's perception of their current net worth. Considering our wealth or net worth is a total of our current assets minus liabilities, a strong portfolio can significantly boost our confidence and risk-taking appetite. However, if your wealth is being eroded on account of a bad stock market cycle, or even a personal tragedy such as a sudden onset of a serious illness, most will tread with caution.
Finally, one considers the aspect of income. Over the last decade, India's per capita income more than doubled from INR 70,983 in FY 2012-13 to INR 1.72 lacs in 2022-23. In comparison, the average housing prices increased by approximately 90 per cent, suggesting improved affordability. Steadily rising disposable incomes foster a feeling of confidence. It encourages spending and consumption leading to further economic growth. However, over a short term, an increase in disposable income usually results in increased spending on consumer durables, food and entertainment rather than high-value items.
A positive spike in the real estate sector usually occurs when all three ducks are in a row. If the market sentiment is positive, disposable income is rising and wealth is appreciating then its a shoo-in. If only two factors are present such as the market sentiment is positive and wealth is rising, but income is stagnant, it is still in the green. However, if only one of the above mentioned aspects is present but the others are negative, then its challenging.
In 2025, the Indian equity market experienced a significant downturn with investor losses mounting to INR 45 lac crore. The market capitalisation of BSE-listed firms fell from INR 479 lac crores in September 2024 all the way down to INR 401 lac crore by February 2025. This indicates a significant wealth erosion for most Indians who are heavily invested in the stock market. The Nifty Realty Index which peaked in June 2024 at 1,157 has now declined over 26 percent. The months of January and February alone have witnessed a combined decline of 20 percent Y-o-Y. These corrections are indicative of geo-political uncertainties and impending tariff wars. Such uncertainty would lead to volatile markets and bearish sentiment.
Real estate institutional investors are often referred to as contrarian investors because they possess the ability to bet on the future even when the present appears bleak. However, for the rest of us, underlying factors play a huge role in our decision-making process. The recent tax incentives and repo rates cuts have made it easier to consider home loans. However, given the current market sentiment and the recent erosion of wealth in the stock market, only one of the three aspect appears to be in the green. If so, we might need to wait a while for the rest to turn green.
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