Indian Housing Market: Price and Rent Projections Exceed Inflation

Bengaluru: A recent survey of housing sector authorities indicates that average residential property values and rental rates in India are anticipated to surpass consumer inflation in the current year. Experts are divided on whether this will make homeownership more or less attainable for first-time purchasers.

Economic challenges, stagnant income levels, and a scarcity of well-compensated employment opportunities have impacted many households. Over the last decade, property prices have approximately doubled, particularly in a market segment predominantly driven by affluent individuals.

The imbalance between robust demand and restricted supply has propelled residential property values to levels where many are compelled to rent.

Median projections from a survey of 14 real estate market specialists, conducted between February 17 and March 4, suggest that average home values in India will increase by 6.5% this year and 6.0% the following year, following a 4.0% increase last year.

Imports of finished steel into India from South Korea, China, and Japan reached unprecedented levels between April and January.

These projections align with those from a prior poll conducted in December, before the Reserve Bank of India initiated interest rate reductions, which are predicted to be modest and brief.

Urban rental rates are poised to escalate at a faster tempo, experiencing a surge of 7.0%-10.0% throughout the year. This expansion would significantly outstrip consumer inflation, projected at 4.3% and 4.4% for the next two fiscal years, as indicated by a separate survey.

The surge in rental costs is exacerbating the challenges for first-time purchasers in accumulating funds for initial payments, making homeownership even harder to achieve.

Pankaj Kapoor, Managing Director at Liases Foras, a real estate research firm, remarked, “This presents a dual challenge: property values are increasing faster than inflation, and rental costs have been soaring for years. Homeownership is becoming increasingly unattainable for many.”

Kapoor further stated, “There are multiple contributing issues. Economic expansion is not resulting in increased earnings and employment. Instead, the housing sector is catering primarily to wealthy buyers, and this trend is likely to persist.”

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

The survey anticipates that average residential property values in Mumbai and Delhi, including the National Capital Region, will rise between 5.8% and 8.5% this year and the next, while Bengaluru and Chennai are expected to experience increases of 5.0%-7.3%.

When questioned about the future affordability for first-time purchasers in the coming year, opinions among property market experts were evenly split, with seven anticipating improvement and seven expecting deterioration.

Arvind Nandan, Managing Director of Research at Savills India, commented, “With rising prices, affordability for first-time buyers is anticipated to decline as increasing expenses exceed income growth, making homeownership more difficult, especially in high-demand metropolitan areas.”

Nandan added, “This is why renting is more feasible than purchasing a home.”

Securing reasonably priced housing remains a substantial hurdle for the numerous individuals relocating to urban centers amid India’s rapid urbanization, despite governmental initiatives aimed at boosting supply.

When asked about the most probable factor to augment the supply of affordable housing in major urban areas, 11 out of 13 participants cited interventions from central or local authorities. One participant mentioned market-driven adaptations, and another suggested that there would be no significant change shortly.

Vivek Rathi, Director of Research at Knight Frank, noted, “Despite policy actions intended to bolster demand and the introduction of affordable housing in India, there is an ongoing deficiency of 10.1 million units.”