The Rich Are Fuelling a Spike in Home Prices in India
Rental Markets Show a Similar Trend
December 11, 2024
India’s richest 1% are significantly driving up home prices, making housing unaffordable for middle and lower-income groups, according to a report, which explains that property developers are increasingly focusing on luxury housing, which sidelines the majority of the population, particularly first-time homebuyers.
Average home prices in major Indian cities are set to increase steadily over the coming years, primarily fuelled by demand from wealthy individuals, according to a Reuters poll of 12 property market experts conducted between Nov. 12 and 29.
The survey projected a 7% rise in home prices this year, followed by increases of 6.5% in 2025 and 7.5% in 2026. To grasp what a 7% increase means, let’s consider this example: if a property is priced at 5 million rupees, a 7% rise would add an extra 350,000 rupees to its value.
“The segment which is driving all this price increase is the luxury segment. And this will continue for some more time, but the entire narrative we all are seeing is very rosy,” the newswire quoted Ajay Sharma, managing director of Valuation Services at Colliers International, as saying. Sharma also warned, “Nobody is talking about structural issues in the demand. Once the top cream stops buying, you will have a massive fall in sales.”
While the richest 1% of Indians, who control 40% of the country’s wealth, are snapping up homes in urban centres, the middle class is grappling with rising living costs, the newswire noted.
The “Mood of the Nation” poll of 2024, conducted by CVoter for India Today earlier this year, found that 64% of the people felt their economic situation had either deteriorated or remained the same over the past decade, with 35% specifically feeling their situation had worsened since 2014. The survey also found that a striking 71% of respondents described the unemployment situation in the country as either “very serious” or “serious,” with 54% labelling it as “very serious.”
Furthermore, managing current household expenses was a challenge for 62% of those surveyed. And a total of 66% did not anticipate an increase in their household incomes, with 30% expecting it to deteriorate.
Now, what makes the predicted rise in real estate prices particularly worrisome is that it is expected to impact not just purchases but also rental markets, according to the Reuters report.
Rents are expected to rise even faster than home prices, increasing by 7.5% to 10% over the next year, as per the median projections of 11 property experts. It stems from growing unaffordability in the housing market.
India’s housing affordability crisis reflects a global challenge, but the scale in India is immense.
With a population exceeding 1.4 billion, the demand for affordable housing vastly outpaces supply. The inability to meet this demand leaves a significant portion of the population in precarious housing situations, reliant on expensive rental markets or substandard living conditions.
Some experts suggest that lower interest rates could provide relief to homebuyers, but the potential impact appears limited, according to Reuters.
The Reserve Bank of India is not expected to make substantial rate cuts, with economists forecasting no more than 0.50% rate cut early next year. This modest easing is unlikely to alleviate the affordability pressures faced by middle- and lower-income groups.
According to the 2011 Census, which is the most recent, 37% of households in India reside in one-room houses, 32% in two-room houses, 14% in three-room houses and 13% in houses with more than four rooms. The census also revealed that 31% of urban households did not own a house.
