BENGALURU: India’s average home prices and rental costs are set to outpace consumer inflation this year according to a Reuters poll of housing experts who were split on whether affordability for first-time homebuyers would worsen or improve.
While faltering economic growth, stagnant wages and a dearth of well-paying jobs have left millions of working-class families with depleted savings, home prices have nearly doubled in the past decade in a housing market dominated and driven by those with high incomes.
In addition, a mismatch between strong demand and limited supply has inflated home prices to a point where tens of millions are having to rent.
Average home prices in India will surge 6.5% this year and 6.0% next, following a rise of about 4.0% last year, according to median forecasts in a February 17-March 4 survey of 14 property market experts.
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That outlook was barely changed from a December poll, taken before the Reserve Bank of India began cutting interest rates in what is expected to be a short and shallow cycle.
Urban rental costs were set to climb even faster, jumping 7.0%-10.0% over the coming year. Such an increase would far outpace consumer inflation, which is expected to average 4.3% and 4.4% over the next two fiscal years, according to a separate Reuters survey.
With rents soaring, the path to homeownership is even steeper as first-time buyers struggle to save for a down payment.
“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.
“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.”
Ajay Sharma at Colliers International and Atif Khan at CBRE were in broad agreement.
Average home prices in India’s two most populous cities, Mumbai and Delhi – including its surrounding National Capital Region – are expected to rise between 5.8% and 8.5% this year and next, while prices in Bengaluru and Chennai are forecast to increase 5.0%-7.3%.
Asked what will happen to affordability for first-time home buyers over the coming year, property market experts were split, with seven saying it would improve and seven saying worsen.
“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.”
Finding affordable housing remains a major challenge for the millions migrating to cities as India rapidly urbanizes, despite government initiatives to increase supply.
Asked what would most likely drive an increase in the supply of affordable housing in major cities, 11 out of 13 respondents said intervention from central or local government. One cited market-driven adjustments and another said there would be no significant shift anytime 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.
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