Today let us read on why property prices are rising in India? If you see people opinions are divided, with some saying that this is a real estate bubble and the market will crash, causing property prices to fall. Others argue that it's a normal situation and prices will continue to rise for some time.
The only logical way to answer this argument is by analysing data. Today, I'll discuss why property prices in India are continuously increasing by analysing real estate data. In India, no single company has authority over real estate data.
Many companies like Knight Frank, JLL, etc., publish data on the number of units sold and launched. However, there is some variation in their data. Some companies consider data from metro cities, while others may not consider data from art houses or villas at all.
While the definitions of MR (Market Research) and NCR (National Capital Region) may vary, three common factors exist in the data of all these companies. Firstly, the number of residential units sold in the last 10 years, from January to June of each year.
Then there is slightly more detailed number of units sold during this period. Lastly, if I analyze the number of units versus the number of launches over the past 10 years, the trade seems balanced. Now, let's print the data for the last six months to analyze the entire trade over the last 10 years.
Half of it is from 2015 to 2023, where A-axis represents the number of residential units, and we're comparing the number of residential units sold (in light blue) with the number of new residential units launched (in dark blue). Now, looking at the print, from 2015 to 2017, there were fewer new launches each year.
The reason being, between 2008 and 2014, there were many launches, and due to the over supply of properties in the market and large-scale implementation, fewer launches occurred from 2015 to 2017.
Inventory supply was limited, and after three years of low supply, the market revived. New projects started launching again from 2018 until 2020, then came Covid-19. Once the lockdown ended in 2021, gradual new launches resumed.
Now, looking at the house numbers, there wasn't much variation in demand between 2015 and 2019. Demand dropped in 2020 due to obvious reasons of Covid-19, then revived in 2021 and reached new heights in 2022 and 2023.
If that story was based on adjustments, it was just user demand. From 2008 to 2014, many people became real estate investors who exited the market after 2014 and were less active. But when the market slowed down a bit in 2020 due to Covid, everyone thought it was the right opportunity to re-enter the market, which encouraged many individuals to rent properties.
Today's release date investor created additional demand. Basically, those investors and individuals who delayed their decision to buy property in 2020-21 reconsidered in 2022-23. So, there wasn't a significant increase in new demand, but a deferment of demand.
Now, as inventory supply was limited, as soon as demand increased, prices surged. Since the demand is good now, back-to-back projects are being launched. If you look at the data for 2022-23, you'll see new launches happening here.
The next reason behind the increased demand and potentially rising prices is NRI (Non-Resident Indian) investments. Over the last few years, NRI investments in India have been steadily increasing, currently accounting for about 15 to 20% of the total residential sales in India.
With the current trend, NRI investments in India are expected to continue growing. This indicates that demand for property in India has increased over the last two years. However, the question now is whether the demand for property will continue to increase in the same manner, or if the story will stabilize.
To answer this, we'll need to analyze more data regarding the current high demand for property and the potential increase in demand in the future. One of the biggest reasons for this future demand increase is the growth of urban population in India.
Almost half of India's population resides in urban areas, and this trend is expected to continue. With the growth of urban population, the number of Indian middle-class households is also increasing.
According to a report by McKinsey Consulting Group, by 2025, the Indian middle class expected population is around and would be almost 40% of the India's population, non-growing middle-class population along with the urbanization.
Due to both these factors combined, residential demand in cities will significantly increase. These are the reasons why it is expected that the demand for residential property will increase, and if demand increases, prices will rise. But apart from this, there is another reason that will impact property prices, and that is the demand for integrated lifestyles.
Now, India's middle class doesn't just want a house; they want amenities like gyms, swimming pools, clubhouses, security, and beyond that, they also want an integrated township. It means they want schools, hospitals, or even shopping complexes to be nearby.
This current price hike has already been around for two and a half years, and it is expected that it may continue for another year to three years, but the price won't increase as rapidly as it has been.
There is also a logic behind this in the history; cities develop very quickly. Whenever the prices of a city become very high, the city's prices don't decrease, but the city expands. Like Delhi expanded to Noida and Greater Noida, but in today's date, Sonipat, Panipat, Karnal, Mumbai was Mumbai.
It had developed, hadn't it? New Mumbai, Panvel, Kalyan, Dombivli, and in the same way, it directly expands. It's a good opportunity to launch your project, and that's why many developers are launching back-to-back projects. In fact, in 2023, the number of units in the new product launch and the number of units sold will gradually increase, and only then will the price stabilize.
But it will take some time, and until then, the market will remain volatile. Plus, many Mumbai developers will also have to change their vision and move a little further from the city center so they can upload their homes.
I have shared reference links to all the data I used in the description for today's article. If you want to know more about this topic, you can refer to them. I hope you found this article interesting and if you want to know more about the Indian real estate market, subscribe to our newsletters
