Why is Residential Property Expensive in India?

Bangalore: The cost of real estate is increasing rapidly across India. Property has always been a tangible asset to Indians. The real estate market in India is dynamic in nature and maintained its growth even during lethargic market situation. Most of the people look upto real estate as a good investment segment, either for long-term investment or for accommodation purpose, which has led to an enduring demand for real estate sector at any given time. Inspite of this, the real estate sector is expensive, below are some facts as to why the Indian residential property prices are so high?

1) Demand overshoots supply:

The residential sector has been flourishing over the past few years by attracting buyers, which has led to spiraling demand in the real estate sector. Despite volatile economic condition, the demand for residential has grown exponentially and majority of people are opting to buy houses, resulting in escalated demand. This increasing demand has resulted in unreasonable prices in real estate, especially in residential sector. Though the demand is high yet India is still falling short of millions of homes and leveraging on this fact are developers who tag their projects with high prices to meet demand. The demand for housing overshoots supply and therefore developers are coming up with their projects in suburbs as well.

2) India is now a hotspot for NRIs:

Drop in Indian rupees has been alluring NRIs to park their investment in Indian real estate sector. Indian realty sector is becoming one of the most favorable destinations for NRIs and considering this fact developers are projecting hi-tech features and offering global living standards in their projects, resulting in premium prices. In addition to this are the online portals through which NRIs are accessing the Indian realty market. Moreover, property transactions and investments have become easier nowadays through online banking and exclusive accounts.

3) High Interest rate & construction cost:

In recent past, the Interest rates on home loans and the residential property prices have touched the sky resulting in unreasonable EMIs. With the high rate of inflation and more number of residential projects coming in, that question of residential property prices coming down seems to be unrealistic. Instead of going down, the property prices have gone up. Moreover, developers are coming up with luxurious projects, independent houses, villas and villaments, leading to escalated property prices.

Another reason for hike in property prices is the construction cost which has increased due to hike in interest rates. Niranjan Hiranandani, MD of Hiranandani Group cited that “With the cost of raw material like cement, steel and other inputs going up by 25 percent, it is just not possible for developers to reduce the cost, unless the government offers some subsidy”, reports Economic Times.

4) Robust growth in IT sector:

India has been a sought out destination for the IT/ITeS Companies, pushing the property prices high. As there has been tremendous growth in this sector, the job opportunities are also increasing consequently leading to increased demand in residential segment. IT professionals have become one of the major investors in the residential segment, as they have high income and can afford the price quoted by the developers, which has led property prices to go up.