Have you seen the clip of billionaire Nikhil Kamath mentioning that he lives in a rented house? It has left the entire social media debating, even to the extent of not believing the fact. The previous generation has been of the belief that buying your own house is like owning an immovable valuable asset and is seen as a long-term investment displaying financial security. However, the statement made by the co-founder of Zerodha does hold some relevance in today’s India, considering the ridiculously inflated real estate valuations, especially in metropolitan cities like Mumbai, Bangalore, Gurgaon, etc. So, what is driving this phenomenon? Is the real estate market in these metro cities sustainable, or is India’s real estate sector truly in a “bubble”?
The Indian real estate industry is one of the country’s largest contributors to GDP, accounting for over 7% of the GDP and employing over 50 million people. This sector has seen tremendous growth over the past two decades, with metro cities like Bangalore, Gurgaon, and Mumbai turning into global commercial hubs and property prices soaring. The market size was valued at around $477 billion in 2022 and is estimated to reach $1 trillion by 2030.
But has the “Boom” peaked yet? In the last decade, property prices in cities like Bangalore, Mumbai, and Gurgaon surged by as much as 200%. Bangalore alone witnessed a 150% price increase in high-demand areas, majorly driven by urbanization, infrastructural development, and notably, the booming IT industry. With cities like Bangalore and Mumbai ranking among the world’s wealthiest real estate markets, it’s no wonder the property prices have been soaring high.
The population influx into these cities has been remarkable too; for instance, Bangalore’s population has grown by 47% since 2000, with similar trends in Mumbai and Hyderabad. This price growth has turned Indian cities like Delhi NCR, Hyderabad, Ahmedabad, and Pune into some of the most expensive real estate markets globally.
But these hugely inflated prices and concerns about a high level of unsold estate have also created an overheated market, sparking debates about a possible “housing” bubble that Indian real estate might be in.
A housing bubble basically occurs when property prices become unsustainably high due to speculation rather than actual market demand. In cities like Gurgaon, rapid infrastructure development, corporate investments, and a spike in property prices seem to align with this phenomenon, with experts raising concerns about the possibility of a bubble. According to real estate advisory firm Anarock, unsold housing inventory in the top seven Indian metro cities had reached 7 lakh units by the end of 2023, indicating a supply surplus. This overvaluation, combined with surging NRI investment, leads to the possibility of an “artificial” market.
However, some experts believe that upon closer look, it becomes clear that the real estate market is not a bubble but rather an underrated and incredible investment opportunity. The Indian real estate market is quite stable, with prices unlikely to crash, given the strong economic fundamentals. Morever, evolving regulatory environments, with measures like RERA (Real Estate Regulatory Authority), ensure greater stability and transparency. Driven by factors such as rising incomes, urbanization, and favorable demographics, the Indian real estate industry is expected to have significant growth in the coming years, with strong potential for both economic growth and foreign investment.
It may come as a surprise, but many wealthy Indians are now choosing to rent luxury properties rather than buy them, particularly in high-cost cities like Bangalore, Delhi, and Gurgaon. The common belief is that renting provides these individuals flexibility and financial freedom, especially among the newer generations, which are not interested in the idea of getting burdened with down payments, EMIs, and property maintenance in their late 20s. This preference for renting over buying can also be attributed to the relatively low rental yields in Indian real estate. The average rental yield of 2.9% in India is among the lowest in the world. This basically means if someone buys a property for INR 10 crore, they would only earn INR 25 lakh annually from renting it out, far below what they could make through other investments.
However, there is another side to this. DLF Privana South, a luxury project by DLF (one of the top real estate companies) in Gurgaon, was sold out within just 72 hours of its pre-launch phase, selling up to 1113 luxury flats worth INR 7,200 CR. This shows the strong demand for residential properties, especially by the ultra-rich class and the NRIs.
So what’s driving these ridiculously high prices? Beyond just the basic economics lies the sheer unbalance caused by a skewed supply and increasing demand, combined with structural issues, contributing to the high prices. Land acquisition in India is lengthy and costly, often involving legal challenges, high interest rates for home loans, and a tedious process till possession.
India faces a huge issue of housing deficit, especially at the bottom of the pyramid, and the middle class, which is eager to buy their own homes but reluctant due to the prices. Owning a house has always been a sentimental and emotional decision for Indians, with real estate being the most preferred asset since it displays the financial security of any family, and owning a house as early as possible seems like a huge burden off your shoulders.
Then there’s the element of exclusivity: high-net-worth individuals are increasingly drawn to luxury properties, with developers catering to this demand by offering modern amenities at prime locations, creating a niche but lucrative market.
The booming real estate sector in India, while lucrative from the outside, also comes with its risks. Highly inflated prices driven by speculative buying and supply constraints raise questions about sustainability in the long term. However, what also lies is an underrated investment opportunity, potentially playing a key role in India’s economic growth in the long term. The preference for Renting over Buying also highlights a potential shift in India’s real estate mindset, moving from viewing property solely as an investment to focusing on flexibility and financial efficiency. With more people realizing the opportunity cost of investing in property, the Real Estate commerce will have to balance aspirations for luxury with the reality of a saturated market.