Why owning a home in India is becoming increasingly difficult?

Owning a home has long been seen as a cornerstone of financial stability and personal success. However, in recent years, the dream of buying a home has become increasingly elusive for many Indians. This article explores the multitude of factors that have made owning a home in India so difficult, focusing on economic, social, and policy-related challenges.

Surge in Property Prices

The rise in property prices across India has made homeownership a daunting task. This surge is not limited to the National Capital Region (NCR); major cities nationwide have seen a significant increase in real estate prices post-pandemic. The reasons for this surge are manifold:

1. Urbanisation and Migration: Rapid urbanisation and rising migration to cities in search of better opportunities have driven up demand for housing, thus inflating property values.

2. Land Scarcity: Limited availability of land in densely populated urban areas has resulted in higher land and property costs.

3. Speculative Investments: Real estate has attracted a significant number of speculative investors who buy properties for resale at higher prices, further driving up the market value.

Income Stagnation and Loan Challenges

While property prices have soared, income levels have not kept pace, creating a gap that makes homeownership challenging for many, especially millennials. Several factors contribute to this issue:

1. Wage Growth: Wage growth has been sluggish, failing to keep up with inflation and rising living costs, leaving less disposable income for home purchases.

2. Employment Instability: Job market instability and employment uncertainty make it difficult for individuals to commit to long-term financial obligations like home loans.

3. High Interest Rates: Although home loans have become more accessible due to lower interest rates, the financial burden remains substantial. Securing loans has been particularly challenging for those looking at properties in Tier II and Tier III cities, where market price variations complicate the loan approval process.

The Millennial Factor

India has the world’s largest millennial population, with approximately 440 million individuals, constituting around 34% of the total population. The median age in India is around 28, and these young adults are flocking to major cities, driving demand for both residential and commercial spaces. However, their homeownership journey is fraught with difficulties:

1. Preference Shift: In recent years, there has been a noticeable shift in millennials' attitude towards homeownership. Unlike in 2016-2019, when renting was preferred, a 2023 survey by CBRE indicated that 70% of millennials are now interested in buying a home. This shift has intensified competition and driven up prices.

2. Financial Burden: Properties acquired in Tier II and Tier III cities yield less in rental income, forcing millennials to cover their EMIs from their own pockets while incurring significant rental expenses in metropolitan areas. This double financial burden makes the dream of owning a home in a metro elusive for many.

Housing Affordability Crisis

The sharp rise in housing prices over the last two years (2022 and 2023) has exacerbated the affordability crisis. Rapid urbanisation, a burgeoning middle class, and young professionals migrating to urban hubs have intensified competition and driven up prices. The construction industry has struggled to keep pace with rising demand due to several issues:

1. Regulatory Hurdles: Bureaucratic red tape and regulatory challenges delay housing projects, increasing costs and limiting supply.

2. Land Scarcity: The scarcity of land in urban areas continues to be a significant barrier to affordable housing development.

3. Investment Deficits: There is a lack of investment in affordable housing projects, further contributing to the supply shortage.

The Real Estate Market Dynamics

The real estate market in India has experienced significant fluctuations, with prices in major cities increasing sharply. According to data from Colliers-Liases Foras, cities like Delhi-NCR, Bengaluru, and Kolkata have seen substantial price hikes. For instance:

1. Delhi-NCR: Average prices per square foot (sq. ft.) jumped 32% to ₹9,170 in 2023 from ₹6,958 in 2021.

2. Bengaluru: Prices increased by 31%, reaching ₹9,976 per sq. ft. from ₹7,609.

3. Kolkata: Average prices rose by 30%, climbing to ₹7,912 per sq. ft. from ₹6,081.

Despite these increases, the Mumbai Metropolitan Region (MMR), India's largest residential market, saw stable prices with only a 2% rise, indicating a relatively saturated market.

Government Initiatives and Market Realities

Government initiatives like the Pradhan Mantri Awas Yojana-Urban (PMAY-U) have aimed to make homeownership more accessible by providing interest rate subsidies on home loans. However, the impact of such schemes is mixed:

1. Demand vs. Supply: According to the National Housing Bank's (NHB) 2023 report, despite a 250-basis point increase in the repo rate between 2022 and 2023, demand for residential housing remained strong, driven by urbanisation and rising disposable incomes. Yet, the supply has not kept pace, leading to sustained high prices.

2. Loan Disbursements: Individual housing loan disbursements grew by 19.88% in March 2023, reflecting strong demand. However, this has also led to inflated property values, further pushing out genuine first-time buyers.

Socio-Economic Implications

The housing affordability crisis has broader socio-economic implications:

1. Social Mobility: Owning a home has traditionally been a pathway to upward social mobility. The inability to achieve homeownership can lead to stagnation in social mobility and deepen economic inequalities.

2. Rental Market Pressure: The rise in 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.

The Path Forward

Given the current market dynamics, waiting for a significant price correction does not seem feasible. Instead, potential homebuyers should look towards emerging suburbs and peripheral areas of major cities where property prices are still relatively affordable. These areas are likely to see price growth as central urban areas become saturated.

1. Suburban Focus: Investing in up-and-coming suburbs can provide early mover advantages as these areas develop infrastructure and amenities, driving future demand and price appreciation.

2. Alternative Investments: For those with properties in Tier II and Tier III cities, converting properties into alternative assets like student accommodations or bed and breakfasts can improve rental income.

The Indian housing market faces significant challenges that make homeownership difficult for many, especially millennials. However, with strategic planning and informed investment decisions, the dream of owning a home can still be realised. Policymakers and the government must also continue to implement and refine schemes to make homeownership more accessible, ensuring that the aspiration to own a home remains within reach for future generations.