Market in Depth

Pandemic adds pain to India's already weak housing market

Lalaine C. Delmendo | October 29, 2020

India's housing market has ground to a halt. Home sales, residential construction have declined steeply, as the economy has suffered its worst decline on record due to the coronavirus pandemic, and except for Hyderabad and Ahmedabad, real house prices have been falling in major cities.

During the year to Q2 2020, according to PropTiger:
  • Hyderabad witnessed the highest y-o-y price increase at 7% (1.7% in real terms), to an average of INR 5,505 (US$75) per sq. m. 
  • In Ahmedabad, prices rose by 6% y-o-y to an average of INR 3,104 (US$42) per sq. m. (up 0.8% in real terms)
  • In Kolkata, prices rose by 3% y-o-y to INR 4,178 (US$57) per sq. m. (down 2.1% in real terms)
  • In Bangalore, prices rose by 3% y-o-y to INR 5,299 (US$72) per sq. m. (down 2.1% in real terms)
  • In Pune, prices rose by 2% y-o-y to INR 4,951 (US$68) per sq. m. (down 3% in real terms)
  • In Mumbai Metropolitan Region (MMR), the average house price rose by 1% y-o-y to INR 9,490 (US$130) per sq. m. (down 4% in real terms)
  • In Delhi NCR, prices increased 1% y-o-y to INR 4,293 (US$59) per sq. m. (down 4% in real terms)
  • In Chennai, prices were steady at an average of INR 5,138 (US$70) per sq. m. (down 4.9% in real terms)

The All-India house price index rose by 3.92% y-o-y during Q1 2020, slightly up from the prior year's 3.64% growth, according to the Reserve Bank of India (RBI), the country's central bank. However when adjusted for inflation, nationwide house prices actually dropped 1.21%. On a quarterly basis, house prices fell by 0.25% (-0.96% inflation-adjusted).

Residential construction activity is falling. In Q2 2020, only 12,564 housing units were launched, down by a huge 80.7% from a year earlier, according to PropTiger. Total launches in H1 2020 were down almost 65% from the same period last year.

Demand is depressed. In Q2 2020, home sales in India's 8 major markets (including Ahmedabad, Bangalore, Chennai, Delhi NCR, Hyderabad, Kolkata, MMR, and Pune) plunged by a whopping 79% to 19,038 units compared to 92,764 units sold in Q2 2019, according to PropTiger. For the first half of this year, sales dropped 52% from a year earlier.

“The current pandemic is an unprecedented black swan event that is expected to contract growth in the global economy, including that of India,” said Mani Rangarajan of “Our recent buyer survey indicated that buyers have pushed back their purchasing decision by up to a year.”

India's economy shrank by 23.9% in Q2 2020 from a year earlier, in sharp contrast to y-o-y growth of 3.1% in Q1 2020 and the biggest contraction on record, after lockdown was imposed in late March and extended several times. Fitch Ratings expects GDP to contract by 10.5% in FY21, double the 5% fall it forecast in June.

India house prices
Buying property in India: a foreign national resident in India does not require approval of the RBI to purchase immovable property in India. Once he is a resident in India, he gets rights like any other resident. This freedom is however not available to citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan. However, a foreign national of non-Indian origin resident outside India cannot buy any immovable property in India. It is illegal for foreign nationals to own property in India unless they satisfy the residency requirement of 183 days in a financial year (a tourist visa lasts for 180 days). It is also illegal to buy property on a tourist visa.

Moreover property cannot be purchased jointly in the name of one eligible person with one non-eligible person. That means a non-resident Indian (NRI) or foreign national of Indian origin (PIO) cannot buy a property jointly with a foreigner.

Analysis of India Residential Property Market »

Rental Yields

India's residential property yields still low

Residential property prices have risen strongly in India in recent years (see our home price charts for India). Rents have not kept pace, so it is hardly surprising that the gross rental yield - i.e., the percentage return on your purchase of property - is low in India's major cities.

South Mumbai has very low rental yields, with property investors earning around 2.40% gross. Apartments remain expensive, at about US$10,900 per square metre (sq.m.) for 120 sq.m. apartments, making Mumbai the world's 13th most expensive city for the property buyer. It is unlikely that after costs and depreciation a property buyer will make any return on his property.

In New Delhi, prices per sq. m. are of course much lower, despite the continuous price rises in that city. In 2017, the price per sq. m. of a 120-sq.m. apartment in New Delhi was between US$2,000 and US$4,500. Gross rental yields in Delhi are extremely poor, at around 2.00% gross.

In Bangalore, prices are around US$700 to US$1,500 per sq. m. Rental yields are higher in Bangalore, ranging from 3.35% to 4.12%. Again, this is a long way below the nice yields of 7.16% to 9.92% which could be obtained way back in the year 2007.

In Calcutta, prices per sq. m. range from US$700 to US$2,100 per sq. m. Rental yields are higher than in New Delhi, ranging from 2.80% to 4.00%.

Conclusion: Indian gross rental yields are very low. This suggests that Indian residential property is somewhat overvalued. While low rental yields do not always indicate over-valuation, especially in periods when interest rates are low, they are only justified if rapid economic growth is expected, and also, if there are sufficient restrictions on new building to prevent the market being flooded with new properties as prices rise. The buyer must ask himself whether these two conditions are met in India.

Round trip transaction costs are moderate to high in India. See our Property transaction costs analysis for India and Property transaction costs in India, compared to the rest of Asia

Read Rental Yields »

Taxes and Costs

Rental income tax is low to high in India

Rental Income: Net rental income is taxed at progressive rates, from 10% to 30%.

Capital Gains: Capital gains are taxed at the standard income tax rates.

Inheritance: No inheritance or gift tax is levied in India. But a wealth tax of 1% is imposed if the net wealth exceeds INR10 million (US$147,059).

Residents: Residents of India are subject to tax on their worldwide income at progressive rates, from 10% to 30%.

Read Taxes and Costs »

Buying Guide

Buying costs in India range from low to high

Total roundtrip transaction costs, i.e., the cost of buying and selling a property, are between 8.75% and 15%. Stamp duties and registration fees vary according to city and locality.

Read Buying Guide »

Landlord and Tenant

Pro-tenant laws in India often inhibit rental market

India colonial style housesIndian law is pro-tenant.

Rent Control: For Delhi, the maximum annual rent is 10% of the cost of construction and the market price of the land. But both construction cost and land price are based on historical values, not on the property's current market value.

Tenant Security: It is difficult for a landlord to protect his property from unwanted overstaying tenants. Though contracts may be enforceable in the courts, the enforcement process is likely to take years, or even decades.

Read Landlord and Tenant »


Indian economy contracts sharply

India’s economy shrank by a whopping 23.9% in Q2 2020 from a year earlier, the biggest contraction on record, after the country imposed nationwide lockdown in late March and extended it several times. Over the same period:
  • Gross fixed capital formation declined by 47.1%
  • Private spending plunged 26.7%
  • Inventories dropped 20.8%
  • Exports fell 19.8% while imports dropped 40.4%
  • In contrast, government spending rose by 16.4% due to the introduction of relief measures to cushion the impact of the pandemic

Following the worse-than-expected Q2 figures, various agencies revised down their full-year forecast for the Indian economy. Fitch Ratings, for instance, now expects India’s GDP to contract by 10.5% in FY21, more than double the 5% fall it had forecast in June.

In May 2020, Prime Minister NarendraModi unveiled a INR 20 lakh crore (US$271.7 billion) ‘Atmanirbhar Bharat’ stimulus package aimed at spurring economic growth and building a self-reliant India.

India gdp inflation
“The COVID-19 pandemic has brought an opportunity for India to be self-reliant for which we have announced a Rs 20 lakh crore package which is 10% of India’s GDP,” said PM Modi.

Yet India’s GDP growth was slowing even before the pandemic. The economy expanded by 4.2% in 2019, the lowest growth since the 2008 global financial crisis, according to the IMF.

The Indian economy grew by an annual average of 7.1% from 2009 to 2019, though there were claims that India’s actual GDP growth was considerably lower than shown by official figures.

India’s unemployment rate stood at 8.4% in August 2020, up from the previous month’s 7.4% but significantly down from a peak of 23.5% in April and May 2020, based on figures from the Centre for Monitoring Indian Economy (CMIE). Urban unemployment increased to 9.83% in August 2020 while rural unemployment rose to 7.65%.

The number of unemployed people in India increased to 36 million in August 2020, up from 32 million a month ago.

In May 2019, NarendraModi won a dramatic second landslide election, returning him for another five-year term as India’s prime minister, giving a convincing mandate to his Hindu nationalist BharatiyaJanata Party (BJP).