India's Real Estate Boom: Opportunities Rise, But Affordability Slips Away

In recent years, there has been a growing shift towards more spacious apartments, driven primarily by the rise of disposable incomes among India's middle and upper-middle classes

The growing demand for spacious homes, coupled with infrastructure development and innovative investment models, is pushing property prices beyond the reach of many buyers.

Source : PTI

By Chandresh Vithalani

India's real estate sector stands at a crucial crossroads, undergoing rapid changes driven by soaring demand and escalating property prices. A dynamic mix of shifting consumer preferences, large-scale infrastructure projects, and innovative investment strategies is fueling a market full of promise. Yet, these advancements come with a downside: home prices, especially in cities, are rising steeply, making it harder for many aspiring homeowners to secure a place of their own. These trends will shape the future of real estate, but they also raise important questions about housing affordability for the broader population.

The Demand for Spacious Apartments: A Double-Edged Sword

In recent years, there has been a growing shift towards more spacious apartments, driven primarily by the rise of disposable incomes among India's middle and upper-middle classes. Larger homes, previously a luxury, are now in high demand, especially in metro cities like Mumbai, Bangalore, and Delhi. This shift is no longer just about status; it reflects a desire for multi-functional living spaces. The Covid-19 pandemic accelerated this trend, but it is the broader economic growth and evolving consumer preferences that have sustained it. Buyers today seek homes with private workspaces, wellness amenities, and open green spaces that support a holistic lifestyle.

However, the surge in demand for larger homes has led to an undeniable increase in property prices. For instance, in Mumbai, real estate prices rose by 6-8 per cent in 2022 alone, and in areas like Mumbai, they now exceed Rs 1.5 crore for luxury apartments. As premium projects cater to the high-income segment, the market has witnessed a widening gap in affordability, pushing many middle-income buyers out of the urban core and into less connected suburbs or Tier 2 cities. While these larger homes cater to a growing affluent class, they also exacerbate affordability concerns for a significant portion of the population.

Infrastructure: A Catalyst for Growth, and a Driver of Price Inflation

India's $1.4 trillion National Infrastructure Pipeline (NIP) is revolutionizing urban connectivity. The development of highways, metro systems, and smart cities has greatly enhanced the appeal of suburban and peripheral areas for both residential and commercial investments. Projects like the Mumbai Trans Harbour Link and Dwarka Expressway in Delhi NCR are opening up new corridors for real estate growth, pushing property prices in these areas by 20-30 per cent over the last five years.

While these infrastructure projects are crucial for economic development, they have also inadvertently contributed to rising property prices. As connectivity improves, previously affordable areas are becoming prime real estate hubs, drawing investors and developers who anticipate further price appreciation. In cities like Lucknow and Indore, where metro and highway projects are underway, property prices have soared by 70-90 per cent in just the last five years. Land prices have soared over 100 per cent. These price hikes benefit investors and developers but make homeownership increasingly out of reach for first-time buyers and the middle class.

Tier 2 and 3 Cities: Emerging Hotspots Facing Similar Challenges

Once overlooked, Tier 2 and 3 cities are now emerging as significant real estate growth centers. Cities like Coimbatore, Vizag, and Guwahati are experiencing a surge in demand due to their affordability, growing infrastructure, and better quality of life compared to congested metros. However, even in these smaller cities, property prices are rising rapidly. In Indore and Lucknow, residential property prices have increased by 80 per cent and 90 per cent, respectively, over the past five years.

The growing popularity of these cities is not just a result of improved infrastructure but also due to industrial expansion and remote work options. As more businesses move to these cities, both commercial and residential real estate are seeing increased demand. However, with rising prices, the affordability that initially made these cities attractive is slowly eroding. If this trend continues, even these smaller cities may face the same affordability crisis that plagues India’s metro regions.

Fractional Property Investments: Democratising Real Estate, but Driving Prices Up

Fractional property investments have made it possible for smaller investors to access high-value real estate projects, democratising the market. Platforms that allow fractional ownership of commercial real estate, such as office spaces and co-working hubs, have gained popularity, especially in prime locations where individual ownership is out of reach. This has opened up new avenues for investment, particularly in high-demand areas.

However, this model also drives up prices in prime real estate sectors. As more investors pool resources into fractional ownership, the demand for such properties increases, pushing prices higher in premium locations. While fractional investments offer great returns, they inadvertently add to the affordability crisis for individuals looking to own homes in these same sought-after areas.

The Affordability Crisis: A Growing Challenge

The growing demand for spacious homes, coupled with infrastructure development and innovative investment models, is pushing property prices beyond the reach of many buyers. Despite government efforts to promote affordable housing through schemes like PMAY, the reality is that the average price of homes in India's top eight cities increased by around 8 per cent in 2023.

The rise in construction costs and inflationary pressures are further exacerbating this trend. For many young professionals and middle-income families, homeownership remains a distant dream, as they are priced out of not just metro cities but also emerging urban centers.

Striking a Balance Between Growth and Affordability

India’s real estate market is evolving rapidly, but faces a major challenge: balancing growth with inclusivity. While rising demand, infrastructure projects, and new investment models create opportunities, they also widen the affordability gap. With prices soaring in both metro and non-metro cities, homeownership is becoming harder for many. To ensure the benefits reach everyone, not just the wealthy, policymakers, developers, and financial institutions must collaborate. As India moves towards 2047, improving housing affordability, especially for first-time buyers and middle-income families, will be crucial for sustainable growth.

The author is the Director at Palladian Partners Advisory Pvt Ltd.

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