India’s average home prices and rental costs are projected to outpace consumer inflation this year, according to a Reuters survey of housing experts, who were divided on whether affordability for first-time homebuyers will improve or worsen.
Despite sluggish economic growth, stagnant wages, and a lack of well-paying jobs that have left many working-class families with dwindling savings, home prices have nearly doubled over the past decade in a market increasingly driven by high-income buyers.
Moreover, the gap between strong demand and limited housing supply has led to inflated home prices, forcing tens of millions of people to rent.
According to the median forecasts from a February 17-March 4 survey of 14 property market experts, average home prices in India are expected to rise by 6.5 per cent this year and 6.0 per cent next year, following a 4.0 per cent increase last year.
This outlook has remained largely unchanged from a December poll, taken before the Reserve Bank of India began cutting interest rates in what is anticipated to be a brief and modest rate-cutting cycle.
Rental Prices
Urban rental prices are expected to rise sharply, with an increase of 7.0 per cent to 10.0 per cent forecasted for the next year. This surge would significantly outpace the anticipated consumer inflation rate of 4.3 per cent to 4.4 per cent over the same period, according to a separate Reuters survey.
As rents soar, the dream of homeownership is becoming even more elusive, with first-time buyers struggling to save for down payments.
“This is a double-whammy: home prices will outpace inflation and rents have already been skyrocketing for years. For millions I think homeownership is becoming a distant mirage,” said Pankaj Kapoor, Managing Director at real estate research firm Liases Foras, as per the report.
“There isn’t just one problem; there are many. In short, economic growth isn’t translating into higher incomes and jobs. Instead, we are seeing a housing market where only the wealthy can buy. I don’t think this trend will change soon,” he added.
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Metro Cities
Ajay Sharma from Colliers International and Atif Khan from CBRE shared similar views, reveals the report.
In India’s two largest cities, Mumbai and Delhi (including its National Capital Region), average home prices are expected to rise by 5.8 per cent to 8.5 per cent this year and next. Meanwhile, Bengaluru and Chennai are forecasted to see price hikes of 5.0 per cent to 7.3 per cent.
When asked about the future of affordability for first-time homebuyers, property market experts were divided, with seven predicting improvement and seven foreseeing a worsening situation.
“With these price escalations, affordability for first-time buyers is likely to decline as rising costs outpace income growth making homeownership more challenging – especially in high-demand metropolitan regions,” said Arvind Nandan, Managing Director of Research at Savills India.
“This makes renting a more viable option than home buying,” Nandan added.
The shortage of affordable housing continues to be a significant challenge for millions migrating to cities as India urbanizes rapidly, despite government efforts to increase housing supply.
When asked what could most effectively boost the supply of affordable housing in major cities, 11 out of 13 experts pointed to intervention from central or local governments. One expert suggested market-driven adjustments, while another believed no significant changes would occur soon.
“Although there have been policy measures to support demand and infusion of affordable housing in India…There is already an existing shortage of 10.1 million units,” said Vivek Rathi, Director of Research at Knight Frank, states the report.
