Indian Housing Market: Price and Rent Increases Expected to Outpace Inflation

Bengaluru: A recent survey of housing experts indicates that average home values and rental rates in India are anticipated to grow at a faster pace than consumer inflation this year. The experts were divided on whether the affordability of homes for first-time purchasers will decline or rise.

Over the last ten years, home prices have almost doubled, propelled by affluent individuals, while sluggish economic expansion, stagnant salaries, and a lack of well-compensated employment opportunities have depleted the savings of numerous working-class families.

The surge in home prices, driven by the imbalance between robust demand and restricted supply, has pushed a significant number of people towards renting.

According to the median forecasts from a survey conducted between February 17 and March 4, encompassing 14 property market specialists, average home prices in India are projected to increase by 6.5% this year and 6.0% the following year, subsequent to an approximate 4.0% increase last year.

Finished steel imports into India from South Korea, China, and Japan reached unprecedented levels between April and January.

The forecast showed minimal change from a poll conducted in December, prior to the Reserve Bank of India’s commencement of interest rate reductions, which are projected to be limited in scope and duration.

It is predicted that urban rental rates will rise even more rapidly, with increases ranging from 7.0% to 10.0% over the next year. Such an upswing would significantly surpass consumer inflation, which, according to a separate survey, is expected to average 4.3% and 4.4% over the next two fiscal years.

With rental rates on the rise, the prospect of homeownership becomes even more remote as prospective buyers face challenges in accumulating funds for initial deposits.

Pankaj Kapoor, Managing Director at Liases Foras, a real estate research firm, stated, “This poses a dual challenge: home values will rise more quickly than inflation, and rental costs have already been increasing dramatically for years. For a significant number of people, homeownership is becoming an unattainable dream.”

“The issues are multifaceted. To summarize, economic expansion is not leading to increased incomes and employment opportunities. Instead, the housing market is skewed towards affluent buyers, a trend I anticipate will persist.”

Ajay Sharma from Colliers International and Atif Khan from CBRE concurred with this analysis.

Home values in Mumbai and Delhi, the two most populous cities in India, including the surrounding National Capital Region, are anticipated to increase by 5.8% to 8.5% this year and the following year, respectively. Meanwhile, values in Bengaluru and Chennai are projected to rise by 5.0% to 7.3%.

When questioned about the future of housing affordability for first-time purchasers in the upcoming year, opinions among property market experts were evenly divided, with seven predicting improvement and seven anticipating deterioration.

Arvind Nandan, Managing Director of Research at Savills India, commented, “Given these escalating prices, affordability for first-time purchasers is likely to decrease as rising costs outpace income growth, making homeownership more difficult, particularly in metropolitan areas with high demand.”

“This makes renting a more practical choice compared to buying a home.”

Despite governmental efforts to augment supply, securing reasonably priced housing continues to pose a substantial hurdle for the millions relocating to cities amidst India’s swift urbanization.

When asked about the primary catalyst for boosting the supply of reasonably priced housing in major cities, 11 out of 13 respondents pointed to interventions by central or local government. One respondent cited market-driven adjustments, while another foresaw no noteworthy changes in the near future.

Vivek Rathi, Director of Research at Knight Frank, noted, “Despite policy measures aimed at bolstering demand and promoting reasonably priced housing in India, there is an existing deficit of 10.1 million units.”