Jefferies expects home prices to surge by over 10% in next two years

As reopening continues and current momentum builds, Jeffries expects residential sales to rise through 2021, to 10 per cent above 2019 levels.
Inventory of residential properties would fall to an eight-year low by end of the current calendar year and home prices would rise by over 10 per cent over the next two years, said Global brokerage Jefferies. 

"The start of a new residential cycle should become evident over 2021 as both end-users and investors get back into action. We expect residential sales to cross 2019 levels, inventory to fall to an eight-year low by end-2021 and prices to rise by over 10 per cent over next two years," said Jefferies in a recent report.

However leading developers such as Niranjan Hiranandani, chairman of Hiranandani Communities believe it is hard to predict prices.

"It is difficult  to judge price over two years. If supply increases, prices won't go up. If demand rises, they can--but we can't predict now," Hiranandani said.
Amit Bhagat, managing director and CEO of ASK Property Investment Advisors said reputed/branded developers may have the leeway of increasing prices in 2-3 years in growth corridors in established suburbs." The benefit of increasing prices may not be available in extended suburbs and non-growth corridors which are not in proximity to knowledge economy jobs," he said.

As reopening continues and current momentum builds, Jeffries expects residential sales to rise through 2021, to 10 per cent above 2019 levels. "Even then, 2021 sales would be 30 per cent below peak and 10 per cent below the
2010-2019 decade average levels, indicating significant growth possibilities ahead," Jefferies said.

Indian top-7 city housing volumes were about 35 per cent below 2013 peak in 2019 (i.e. pre-Covid) and dropped 50 per cent in 2020. "The sales momentum has improved significantly by 4Q20 with consultants estimating sales reached 10-15 per cent of pre-Covid levels," it said.
In 2021, low-interest rates (home loans at record low of sub seven per cent) should continue, it said. "Low rates, along with likely double-digit income growth, should keep affordability at cycle best levels. Investment demand is also improving as evident by sales pick-up even at the high-end. Low system-wide interest rates, negative real rates after five-plus years and government support to housing have created the impression of property prices being at cycle low levels, driving a sentiment change. Inventory reduction will drive pricing uptick, necessary to sustain cycle," it said.

Supply increase in 2021 should trail demand as industry consolidation over last five years plays out. Inventory (units) is already down 20% from peak. By end 2021 inventory should reach c25 months of sales, which is close to price appreciative levels. Importantly, to sustain the cycle beyond 2021, some price increases would be
considered healthy, it said.

WHAT JEFFERIES SAYS

"Residential sales to rise through 2021, to 10 per cent above 2019 levels. 

"Even then, 2021 sales would be 30 per cent below peak and 10 per cent below the 2010-2019 decade average levels, indicating significant growth possibilities ahead"

"The sales momentum has improved significantly by 4Q20 with consultants estimating sales reached 10-15 per cent of pre-Covid levels

"Low rates, along with likely double-digit income growth, should keep affordability at cycle best levels. Investment demand is also improving as evident by sales pick-up even at the high-end." 

"Inventory (units) is already down 20 per cent from peak. By end 2021 inventory should reach c25 months of sales, which is close to price appreciative levels. Importantly, to sustain the cycle beyond 2021, some price increases would be considered healthy, "


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