The dream of homeownership is slipping away for the middle class in India. In major cities, affordable housing is fading, while luxury apartments increase rapidly. The gap between income and home prices continues to widen.
In the four years from 2020 to 2024, household income in India has grown at only 5.4%, whereas property prices have increased by 9.3%. According to wealth advisory firm Finology, this widening gap makes owning a house challenging, not just for the poor but also for the middle class. The changes in the real estate sector are apparent, with affordable homes dropping from 310,000 in 2022 to 198,000 in 2024, a 36% decrease.
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Conversely, there is a sharp rise in luxury home supply. Delhi-NCR saw a 192% increase, Bengaluru 187%, and Chennai 127%. Cities, which were previously under pressure, are most affected. Hyderabad has experienced a 69% reduction in affordable homes. Meanwhile, Mumbai's dropped by 60% and NCR by 45%, with Kolkata being the only city witnessing a 7% hike in affordable homes.
The affordability of a home is determined by the portion of a family's income that goes towards loans. If more than 50% of income is allocated to loans, the house is not deemed affordable. It is notable that developers often report lower selling prices by under-declaring the government circle rate and taking the rest in cash, which reduces taxes but increases the home prices.
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Furthermore, the low Floor Space Index (FSI) in India impairs supply. Mumbai has 542 high-rise buildings, whereas Singapore boasts over 2600. Greater permissions exist for constructing in Tokyo, New York, and Delhi. To mitigate this real estate sector issue, adjustments in circle rates monthly, RERA-driven centralized digital platforms, vacancy taxes on empty homes, and regulating NRI investments are essential. Additionally, the government must boost housing supply in smaller cities.
