Truth about India's realty prices: Underperfoming amid lofty projections

Global housing markets are appreciating much better

When actor Rajesh Khanna bought Rajendra Kumar’s bungalow in Mumbai for Rs 3.5 lakh in 1969, Kumar’s wife reportedly scolded her husband for selling it cheap. After Khanna’s death in 2012, the bungalow was reportedly sold for Rs 90 crore.

Real estate returns since the pandemic have been less spectacular. Despite pockets of outperformance, overall housing prices in India increased only 18.2 per cent between March 2019 and March 2024. Global prices increased 31.4 per cent, according to a ‘Business Standard’ analysis of data from the Bank for International Settlements, an organisation of global central banks. The underperformance comes amid predictions that India’s real estate market will be worth $10 trillion by 2047, according to reports earlier in September. Housing prices have increased faster in emerging markets like Russia and Brazil, as well as in developed ones like Japan and the United States.

Adjusted for inflation, the numbers reveal worse. Housing prices in India have fallen by over a tenth in real terms. Comparing year-on-year (Y-o-Y) growth in housing prices shows that India since 2019 is underperforming against the world. Most quarters have had a negative Y-o-Y change. The analysis is based on the housing price indices maintained by the Reserve Bank of India and similar trackers in other countries. The Y-o-Y change in Indian housing prices has largely been weak compared to global trends for much of the time after the pandemic.

And yet prices are unaffordable for most Indians. Middle income Indians are seen to be able to afford houses if the price-to-income ratio is five. It is 11 in India.

Other large economies have lower ratios. For example it is 9.4 in Germany and 3.3 in the United States. But this may well reflect the higher per capita income of the advanced economies. Emerging markets like Brazil, China and Russia all have higher numbers than India.

The latest numbers for June 2024 shows that growth in real estate prices has slowed further.

Khanna’s family may have done well in not holding on.