Take It From Torbit - War Threat: Short-Term Shock For Real Estate!

The geopolitical crisis created by the Israel-Iran war has led to an unprecedented surge in oil prices. The resultant inflationary pressures are adversely impacting the real estate sector, especially in view of the impact on building material prices. However, considering the fundamental strength of the economy and resilience of real estate, the war-induced shock may well be short-lived for the sector.

The fall out of the war is quite evident from the stock market where real estate stocks have been badly battered. Two weeks of West Asia war has hit the sensex by 6.5%, wiping out a staggering INR 34 lakh crore of investors' wealth. Compared to BSE Sensex, BSE Realty Index has seen deeper declines. due to rising input costs of construction materials.

It may be mentioned that the year 2025 had seen an increase in building material cost and labour cost, in turn pushing project costs by 10-15% annually. Further, as crude-linked derivatives are a key component in several building materials, the construction material sector is facing the brunt of the war due to the near doubling of the crude oil price to over USD 100 per barrel. The double-digit increase in the production cost of the building materials will push up the cost of real estate projects.

To further precipitate the matters, inflationary pressure from oil shocks may well increase the borrowing costs. The currency volatility will also have an adverse impact on real estate financing. As a result of this, property prices may go up as developers may not absorb the entire increased cost. Moreover, the cautious approach of the investors may slow FDI inflows in the near-term. Economic experts are forecasting a slowdown in GDP growth in H1 FY27. Nomura has estimated that the West Asia crisis could add 60 bps to fiscal burden in FY27. As a result of this any hopes of further cut in interest rates have been dashed. It would be a relief for the sector if interest rates remain stable.

All this doesn't bode well for real estate, especially as housing sales have taken a beating last year. Anarock and JLL reports respectively pointed to 14% and 11% decline in housing sales in top 7 cities during 2025. PropEquity estimated a 10% dip in home sales in 15 major Tier -2 cities. More recently, Credai-Liases Foras report has pointed out that there was an average 3% decline in housing sales in 50 cities.

But real estate developers are hoping that as Dubai luxury housing has been hit badly due to war strikes, this may well be a blessing in disguise for the Indian real estate as almost 25% of Dubai property buyers are Indians. The India-based property buyers of Dubai property and NRIs investing in Dubai, are expected to diversify their investments in India due to safety of investment. Moreover, NRIs can reap the benefit of a weak rupee. Manish Agarwal, President, Credai-Haryana says that luxury residential markets of Mumbai, Gurugram and Bengaluru could see incremental demand in the near-term.

Going forward as war clouds thin out and considering the bright long-term growth prospects of our economy, Indian real estate is resilient enough to bear the war-induced shocks.

Powered by Torbit Realty.