Warren Buffett-led Berkshire Hathaway recently disclosed that it bought three homebuilder stocks in the second quarter of 2023. Berkshire Hathaway opened stakes in DR Horton, Lennar, and NVR for a total of $814 million. DR Horton is the largest home-builder in the United States in terms of volume.

As of June 30, Berkshire owned about 5.97 million DR Horton shares worth $726.4 million, about 153,000 Lennar shares worth $17.2 million and 11,112 NVR shares worth $70.6 million.

The housing market in the United States has a two-pronged problem— home loan rates are high and homes are expensive. Buffett, however, sees potential in the market. The ace investors’ rationale: an undersupply of houses in the country.

Homes seem to be in short supply in the United States, with estimates varying between 1.5 million and 5 million homes, Forbes reported. This may indicate that housing players in the US may still have pretty good demand visibility, with volumes and revenue to eventually come back as the economy picks up and as inflation eases.

Home truths

But what about the Indian real estate market? Is there an undersupply in the home market as well?

According to a real estate consultancy firm Knight Frank, unsold inventory in H123 was 471,573 units in residential real estate. In the same period, 173,364 units were launched and 156,640 sold. The contrast shows the disparity between the housing markets of the United States and India in terms of the scarcity of homes.

“Supply is on par with demand in select Indian markets where infrastructure and other related facilities are adequately built,” said Jerry Kingsley, India Head, Strategic Consulting, Value and Risk Advisory at JLL.

Indian residential real estate market recorded sales volume of 312,657 units in 2022, according to Knight Frank. Sales volume in 2022 was the highest in the last nine years, the consultancy firm. The Indian -estate sector was dull in the last few years but is now seeing traction.

The top ten Indian real estate firms by market capitalisation have given 9 -45 percent in the last year, indicating that unlike the US, there is optimism in the Indian realty market.

How does the Indian market look?

The Reserve Bank of India’s decision to pause interest rate hikes will likely lead to healthy real estate demand in the coming quarters, said Vineet Agrawal, research analyst at SKP Securities.

Following a series of aggressive policy rate hikes since May 2022, the central bank has held the repo rate steady at 6.5 percent this financial year. The pause, reiterated in the recent policy meeting, signifies that any immediate rate hikes are unlikely, resulting in stable interest rates on home loans, which can stimulate demand.

Brigade, a Bengaluru-based real estate company said prospects for the residential real estate are improving. The sales momentum is expected to continue and housing sale expected to grow 9 percent year-on-year (YoY) for the company.

“Recessionary and inflationary pressures could impact near-term demand slightly, however the market is expected to absorb the pressure,” Brigade management after its Q1FY24 results.

DLF, the Delhi-based real-estate company, expects the housing segment to see strong demand, supported by tailwinds such as improving home affordability, ownership intent, aspirational lifestyle and the need to upgrade to larger homes. It also see increasing consolidation in favour of large and credible developers.

“After the pandemic, there is a rising demand for real estate as people are looking at real estate as safe havens,” JLL’s Kingsley said.

“Post-COVID 19, people have realised that they have to spend more time indoors, and so they want to shift to bigger spaces,” said an analyst on the condition of anonymity. The pandemic pushed up the demand for bigger homes, the analyst said.

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