A Boston Analytics monthly survey on the real estate sector reveals increased supply and pace of construction activity, improvement in pessimism related to real estate prices, and that low rates of interest on home loans appear to be encouraging signs for the Indian real estate sector. All these factors are coming together to encourage Indian consumers to firm up their home purchase decisions.

Sentiment related to spending on homes has improved in the last three months. With the increase in supply as indicated above, pessimism about real estate prices on an observed basis has improved in the last three months in Tier II and Tier III cities and towns.

However, on the expectations side, the trend is consistent across tiers, i.e. a smaller number of respondents (relative to survey results in previous months) are expecting prices and home loan interest rates to rise in the near future and hence the decline in optimism score. Home purchase plans have improved in the last three months. The number of respondents in absolute terms reporting home purchase plans jumped from 466 in January 2010 to 730 in February 2010. Correspondingly, the optimism scores related to home purchase plans registered a phenomenal increase from 6.1 in January 2010 to 7.7 in February 2010.

Shirin Bagga, Economist, Boston Analytics, said, “Increased supply, improvement in pessimism related to real estate prices, and low rates of interest on home loans seem to be encouraging Indian consumers to firm up their home purchase decisions.”

As pointed out by the Economic Survey of 2009-10, the importance of the construction and real estate sector in creation of both physical and financial assets has been growing over the years.

The construction sector now accounts for 8 percent of GDP at constant prices, up from 7.7 percent in 2004-05. Similarly, the share of real estate ownership of dwelling and business services in overall GDP as increased to 9.2 percent in 2008-09 from 8.9 percent in 2004-05.

Source: DNA

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