Missing homes: Here's why owning a home in India has become so difficult

In the post-pandemic world, 34-year-old Shikhar Srivastava, like many others, relocated back to NCR after working remotely for three years in his hometown, Kanpur. While he rented a flat in Greater Noida, he envisioned buying a property there. After purchasing a flat in Kanpur during the Covid-19 real estate market downturn, he was surprised to find buying a home in NCR was completely out of reach. A 2BHK costing Rs 40–50 lakh a year ago was now selling for Rs 70–80 lakh, and 3BHK flats now cost more than Rs 1 crore in NCR, making it difficult for the millennial to buy a home near his workplace. This price surge is not restricted to NCR. Across major cities, real estate prices have climbed after the pandemic, making home ownership increasingly challenging for the layperson. This problem is particularly acute in urban areas, where rapid urbanisation and rising migration have significantly increased property values post Covid-19. While some working millennials (a person born between 1981 and 1996) were able to secure flats at attractive prices in NCR during the pandemic, others, like Srivastava, explored opportunities in Tier II and Tier III cities. However, securing home loans for these properties has proven challenging due to market price variations. Presently, they regret their decision as they find themselves compelled to return to metropolitan areas for employment and seek rented accommodation. With a whopping 440 million, India boasts the world’s largest millennial population. This translates to roughly 34% of the total population, with a median age of around 28. These young adults are flocking to major cities, driving demand for both residential and commercial spaces. The current scenario presents a double whammy: the properties millennials acquire in Tier II and Tier III cities yield less in rental income, necessitating them to cover EMIs from their own pockets. Additionally, they incur significant rental expenses in metropolitan areas. Hence, the dream of purchasing a home in a metro has become an elusive one for many millennials. The main reason behind the affordability crisis is the sharp rise in housing prices during the last two years—2022 and 2023—after Covid-19. This happened due to rapid urbanisation and a burgeoning middle class, which have pushed the demand for housing in major cities. Young professionals migrating to these hubs intensify the competition further. Besides, the construction (real estate) industry has been struggling to keep pace with rising demand. Regulatory hurdles, land scarcity, and a lack of investment in affordable housing projects have all contributed to a supply shortage. In recent years, there has been a clear shift in how millennials view home ownership. Back in 2016-2019, most were happy to just rent. A 2023 survey by property consultancy firm CBRE revealed a surprising trend—a whopping 70% of millennials were now interested in buying a home. A reason for this shift could be the findings of another 2023 survey by real estate services company Anarock, which revealed millennials considered real estate the best investment option. Real estate is considered a safe and lucrative investment option. However, additional demand drives prices further up, pushing out genuine first-time buyers. Low interest rates have made home loans more accessible, leading to bidding wars and inflated property values. According to regulatory body National Housing Bank’s (NHB) annual report on the trend and progress of housing in India in 2023, “The demand for residential housing is driven by rapid urbanisation, growing disposable incomes, initiatives on affordable housing like Pradhan Mantri Awas Yojana-Urban (PMAY-U), stamp duty concessions, etc. Despite the 250-bps increase in repo rate between 2022 and 2023, the demand for residential housing has remained strong.” As such, the outstanding individual housing loan of primary lending institutions (housing finance companies, public sector banks, and private sector banks) registered an on-year growth of 14.88% in March 2023. For the same period, individual housing loan disbursement by primary lending institutions grew by 19.88%, per the NHB report. The report suggests a rising demand for housing in the years ahead. “As demand is higher than supply, there won’t be any sign of correction in real estate prices in at least the next 18-24 months,” says Gunjan Goel, Director, Goel Ganga Developments, a real estate firm. The PMAY-U scheme provided interest rate subsidies on home loans for eligible beneficiaries, significantly reducing the overall loan cost, and making it affordable for millennials with lower incomes. On the flip side, young people can also get bigger loan payment tenure and face stagnant wages, particularly in the early stages of their careers. The rising cost of living further erodes their disposable income, making it difficult to save for a down payment, let alone manage the monthly mortgage burden. Rahul Phondge, Chief Operating Officer of property consultant Anarock Group, says, “People who didn’t buy homes during the pandemic have missed out on the opportunity of lower prices. However, if one is determined, making it possible now makes a lot more sense.” There are no immediate or even mid-term prospects of price corrections, according to Phongde. “Average residential property prices across the top 7 cities (Mumbai Metropolitan Region [MMR], Delhi NCR, Bengaluru, Hyderabad, Chennai, Pune, and Kolkata) have seen a significant jump over the last year—between 10 and 32% in Q1FY24 when compared to Q1FY23, mainly due to an increase in the prices of construction raw materials and an overall rise in demand,” adds Phondge. Hyderabad and Bengaluru recorded the highest annual jumps of over 32% and 25%, respectively. Pricing trend According to data from real estate research consultant Colliers-Liases Foras, home prices in major Indian cities like have surged significantly in the last two years. Delhi-NCR saw the most dramatic increase, with average prices per square foot (sq. ft.) jumping 32% to Rs 9,170 in 2023 from Rs 6,958 in 2021. Bengaluru and Kolkata also experienced substantial price increases. Bengaluru, traditionally India’s third-largest residential market, saw average prices per sq. ft. shoot up to Rs 9,976 from Rs 7,609—a 31% increase. Similarly, Kolkata saw a significant rise of 30% in average prices, climbing to Rs 7,912 per sq. ft. from Rs 6,081 in 2023. Pune saw a 24% rise in average home prices per sq. ft between 2021 and 2023. Prices rose even more in Hyderabad, at 26%, reaching Rs 11,083 per sq. ft Ahmedabad, traditionally a more affordable market, witnessed an 18% rise. In contrast, MMR, the largest market for residential homes in India, witnessed stable prices. The average price per sq. ft in MMR hovered around Rs 20,000. It was Rs 20,047 in 2023, showing only a 2% increase from Rs 19,657 in 2021. According to a survey by Knight Frank India, 41% of the home buyers in Mumbai as of September 2022 were in the age group of 26-41 years. It denotes that in the post-pandemic era, more and more millennials have become first-time homebuyers. Covid-19 has shifted millennials’ spending habits from instant gratification to prioritising saving for home ownership, as remote and hybrid work arrangements underscored the importance of long-term financial planning. Given this trend, waiting for prices to fall does not appear to be a feasible course of action. Rather, young first-time housing investors should look for the up-and-coming cheaper suburbs, and gain an early mover advantage. Demand and price growth get pushed to such areas fairly quickly as the central areas saturate. Again, patience is the key factor in terms of returns—and certainly, residential real estate should not be seen as a get-rich-quick magic trick, because it isn’t. “Rather than going for metros, main cities, one should look out for suburbs where property prices are still pocket-friendly. Also, a wait-and-watch approach might not be the best option as prices in these areas will also rise in another 1-2 years,” says L.C. Mittal, Director of commercial real estate developers Motia Group. People tend to invest in properties in their hometowns because of a familiar landscape. Tier II and Tier III cities are the new growth engines and are bound to see property and rental values go up in the future—especially if they have good amenities. If someone is stuck with properties in Tier II or Tier III cities that offer low rental income, there are strategies to improve their situation. “To monetise properties better, one can consider converting the property into alternate assets with some investment. For instance, student accommodation can be a big market,” says Goel. She adds, “If there are tourist places, one can also mull converting the property into a bed and breakfast.” Millennials should identify whether the city they are currently invested in is slated for major infrastructure upgrades that can significantly boost overall valuations. “If such developments are in the offing, holding on makes a lot of sense,” adds Phondge. The housing crisis has wider socio-economic implications. For instance, owning a home has traditionally been a pathway to upward social mobility. With fewer young people achieving home ownership, social mobility stagnates, potentially leading to or deepening inequalities. Further, the rise of young people priced out of the buying market puts additional pressure on the rental market, potentially leading to rent hikes and a shortage of affordable rental units. One must also understand that buying a home is not an easy task. You need to do proper math before zeroing in on one. Besides, one must also assess one’s financial situation to find out the home loan amount you can afford. Adhil Shetty, Chief Executive Officer of BankBazaar.com, says, “Lenders sanction a loan based on your income. To find out the loan amount you can afford to repay, assess your monthly expenses, Cibil score, etc. Don’t forget about the down payment—usually 20% of the property’s value.” Shetty further says, “When calculating the total cost, don’t forget additional costs such as painting, maintenance, etc.” A dream deferred, not destroyed There is no doubt that the Indian housing market needs a correction to bridge the gap between aspiration and reality for millennials. While owning a home may become a more distant goal in the current scenario, it doesn’t have to remain an unfulfilled dream. Govind Rai, Co-founder and CEO of real estate marketing firm Insomniacs Digital, says, “One should not be disheartened by the sudden price rise. Actually, there is no good or bad time to invest in a home, especially in India, at least for the next 10 years. One should rather start planning to take a plunge. Whenever you are investing, plan for houses keeping the next 6 to 8 years in mind. Thus, wait and invest wisely. Remember, your salaries will grow, and your EMIs in a few years may not look as big as they may look today.” While experts believe that the real estate market is expected to see steady growth over the next decade, making home ownership a sound investment, one should capitalise on the price movement if they have a sound budget. However, on the flip side, to incentivise millennial home ownership in major cities, the government should also devise schemes and tax benefits that make buying a home in metros a more accessible proposition. The PMAY-U scheme needs to be upgraded. For instance, the income caps for each beneficiary category (EWS, LIG, and MIG) might not keep pace with the rising cost of houses. This could leave many potential beneficiaries out of the scheme, even though they might still be considered low-income earners. Upgradation could involve increasing the income caps or introducing additional subsidy tiers to bridge the affordability gap. Hence, by addressing the underlying causes and implementing responsible solutions, policymakers and the government can ensure that owning a home remains an attainable aspiration for not only millennials but also zillennials (those between millennials and Gen Zers). @imNavneetDubey

COMPANIES

NEWS

Missing homes: Here's why owning a home in India has become so difficult

Sky-high property prices, coupled with slow income growth, have made the dream of owning a home a distant one for many millennials. This could lead to stagnation in social mobility and potentially existing social inequalities