Steep price rise creating housing bubble; affordable price cap revision due: Housing.com CEO

Steep price rise over the past three years, post-pandemic, in the housing market is now creating a bubble that has a downside risk of driving away a section of the potential homebuyers, cautions Dhruv Agarwala, Group Chief Executive Officer, Housing.com, PropTiger.com.

Since the second wave of the COVID pandemic receded in mid-2021, property prices have been rising steadily. The price rise has been steep in the residential real estate market as potential homebuyers and fence sitters joined the market to purchase their dream homes. A section of the affluent consumers also enthusiastically purchased second homes or invested into housing market as prices started to grow after many years.

After remaining subdued for nearly a decade – between 2013 and 2021 – the growth in property prices continues to attract investors and homebuyers alike. That, however, could be under stress soon as home prices is skyrocketing. Data suggests, average home prices across top 7 cities have gone up by 35-50% in the past five years. This could pose a challenge for a segment of the homebuyers in coming days.

According to Agarwala, real estate prices are in a bubble now due to high price inflation since 2021. “The concern is that end-users may get out of the market [due to the same],” he tells Business Today Editor Sourav Majumdar in a panel discussion at the India Today-Business Today Budget Round Table 2024.

Talking about the affordable housing sector that has been under stress post-COVID, Agarwala appreciates the government’s decision to allocate Rs 2.2 lakh crore as central assistance for the Pradhan Mantri Awaz Yojana Urban to built 1 crore affordable homes in cities.

He points towards the unmet demands by the industry stakeholders – like revision of the price cap on affordable homes that remains same since the scheme’s launch in 2015 – at Rs 45 lakh. The realtors have been demanding an upward revision of the price cap – at least to Rs 75-85 lakh per unit and increasing the size cap on urban affordable homes from current 60 sq.meter.

While there have been descendent over the removal of indexation by the Finance Minister in the budget for real estate assets, Agarwala, however, is confident that the move will not impact housing demand in the long run. “In the short-term there could be some confusion over the purchases made in recent times. But I don’t see any adverse impact for long-term capital gains,” he says.