Economic headwinds, inflation must be factored in while investing in real estate: Anarock

With expected headwinds from the economic slowdown and inflationary pressure in 2023, investors must factor in those aspects before jumping into an investment decision - including for the real estate assets, said real estate consultancy firm Anarock.

"There is little reason to be pessimistic in the current year, though under-researched investments and a short-term profit perspective must be avoided in 2023," it said.

"That said, 2023 will face some headwinds in terms of economic slowdown and inflationary pressure, and this needs to be factored into any investment decision - including for real estate," said Prashant Thakur, Senior Director and Head - Research, ANAROCK Group.

Many economists and global institutions earlier projected a global slowdown in 2023, as the impact of continued monetary policy tightening across major economies manifests. Raising interest rates typically cools demand in the economy and thus helps in managing inflation, but it also has the potential to trigger a slowdown in overall economic activities.

"2023 will continue to be driven by end-user demand, but serious long-term investors will find the market dynamics more than favorable," it said.

Property prices, it said, are likely to rise by another 5-8 per cent in the larger cities, which bodes well for investors focused on capital appreciation, but also means that rental demand will increase.

As per ANAROCK Research, the current average prices in the top seven cities are collectively approximately Rs 6,150 per square feet.

Over the past five years, they increased over 11 per cent from Rs 5,551 per sq ft. in 2018 to Rs 6,150 per sq. ft. in 2022.

"If we delve deeper and consider the yearly trends in the last five years, it emerges that 2022 saw the maximum yearly rise (6 per cent) in average property prices (INR 5,826 per sq. ft. in 2021 to INR 6,150 per sq. ft. in 2022). The previous four years, on the other hand, saw either no change or a maximum of 3-4 per cent y-o-y increase in 2021 against 2020. Before the Covid-19 pandemic, property prices across cities remained range-bound due to a prolonged demand slowdown," it said.

On RBI's monetary policy rate hike cycle, it said the Indian central bank will likely take a pause now, which will help continue growth momentum.

Since May last year, the RBI increased the repo rate by 250 basis points to contain inflation, which was above the central bank's upper target range of 6 per cent.

( With inputs from ANI )