India’s housing market remains upbeat

India’s housing market remains healthy, buoyed by increasing demand and strong economic fundamentals. 

The All-India house price index rose by a modest 3.81% in Q4 2023 from a year earlier, following y-o-y increases of 3.56% in Q3, 5.05% in Q2, and 4.57% in Q1, according to figures released by the Reserve Bank of India (RBI), the country’s central bank. However, when adjusted for inflation, nationwide house prices declined slightly by 0.93% over the same period.

India’s house price annual change

Quarterly, house prices in Q4 2023 increased by 1.6% - both in nominal and real terms.

Chennai witnessed the biggest y-o-y increase in the house price index of 8.41% (3.46% inflation-adjusted) in Q4 2023, followed by Kolkata (7.65%), Bangalore (6.34%), and Ahmedabad (5.1%). Modest to minimal house price growth was registered in Lucknow (3.09%), Kanpur (2.16%), Mumbai (2.02%), Delhi (1.13%), Jaipur (0.71%), and Kochi (0.64%).

Demand is rising sharply, amidst rapid population growth and increasing purchasing power of the people. During 2023, home sales in India’s 8 major markets soared by 33% to 410,791 units as compared to 308,942 units sold in 2022, according to PropTiger.com. All of India’s eight major cities registered an increase in home sales last year.

“The positive consumer sentiments coupled with the festive season have translated into higher sales as it picked up significant momentum in the second half of the year,” said JLL India in its Q4 2023 Residential Market Update. “The year 2023 recorded a new chapter of growth with every quarter performing better than the previous one. These numbers speak the story of how the markets adapted to change and stepped into an upward growth trajectory.”

The country’s fundamentally strong domestic demand is the primary market driver. India’s population reached 1.43 billion people last year, surpassing China as the world’s most populous country. GDP per capita rose to US$2,612 in 2023, sharply up by 82% from a decade ago, based on figures from the International Monetary Fund (IMF).

India Population and GDP Per Capita graph

Residential construction activity is also rising. During 2023, there were 517,071 new housing units launched in the country’s eight major cities, up sharply by 20% from 431,510 new launches a year earlier, according to PropTiger. New launches rose in 7 out of the 8 major Indian cities during 2023, led by Kolkata, Chennai, and Ahmedabad.

The outlook for India’s housing market remains rosy. “Despite elevated interest rates and prices moving northwards, homebuying mood remained upbeat, a big thumbs up to the domestic sentiment,” said JLL India. The growth trajectory is likely to continue in 2024 and we expect the residential sales to be around 300,000-315,000 units with the assumption that India’s current GDP growth would sustain with a range-bound inflation in the economy and a decrease in home loan interest rate by 40-50 bps during the year.”

During 2023, India’s economy expanded by a robust 7.6%, after growing by 7.2% in 2022 and 9.1% in 2021. The country’s strong economic performance could provide a boost to Prime Minister Narendra Modi’s election bid, who is vying for a third term in office. India is scheduled to hold general elections in April or May 2024.

The economy is expected to remain robust this year, with the Reserve Bank of India (RBI) recently upgrading its real GDP growth forecast for FY 2024-25 from 6.5% to 7%. Likewise, the International Monetary Fund (IMF) has also revised India’s economic growth forecast for 2024 to 6.7%, from its earlier estimate of 6.3%, amidst better-than-expected resilience in its domestic demand.

House price variations

During 2023, India’s house prices continue to increase due to a surge in demand. 

By major city:

  • Mumbai had the most expensive housing in India, with house prices reaching an average of INR 20,047 (US$242) per square feet (sq. ft.) in 2023, up by a modest 4% from a year ago, according to a report released by CREDAI – Colliers – Liases Foras.
  • In Ahmedabad, house prices rose by 9% y-o-y to an average of INR 6,737 (US$81) per sq. ft.
  • Bangalore saw the biggest y-o-y price increase of 21% to reach an average of INR 9,976 (US$120) per sq. ft. in 2023.
  • In Chennai, the average house price was up modestly by 3% y-o-y to INR 7,701 (US$93) per sq. ft.
  • Delhi NCR saw a house price growth of 9% y-o-y in 2023, to an average of INR 9,170 (US$111) per sq. ft.
  • Hyderabad registered an increase in house prices of 10% to INR 11,083 (US$134) per sq. ft. in 2023 from a year earlier.
  • In Kolkata, house prices rose by 11% y-o-y to an average of INR 7,912 (US$96) per sq. ft.
  • In Pune, prices increased by 10% y-o-y to an average of INR 9,185 (US$111) per sq. ft. in 2023.

India House Price Indices graph

Demand is surging

During 2023, home sales in India’s 8 major markets soared by 33% to 410,791 units as compared to 308,942 units sold in 2022, according to PropTiger.com.

“Residential real estate sales in India was at its highest since the peak seen in 2013, witnessing a 33 percent YoY growth, with a total of 4.10 lakh units sold during calendar year 2023,” said PropTiger.com.

All of India’s eight major cities registered an increase in home sales last year.

  • Ahmedabad saw the biggest annual growth in residential property sales of 51% y-o-y to 41,327 units in 2023.
  • In Bangalore, home sales also increased strongly by 44% to 44,002 units in 2023 from a year earlier.
  • In Chennai, home sales rose modestly by 5% y-o-y to 14,836 units in 2023.
  • In Delhi NCR, the number of homes sold increased 11% y-o-y to 21,364 units last year.
  • Hyderabad recorded a strong growth in sales of 49% y-o-y to 52,571 units.
  • In Kolkata, home sales were up by 16% to 12,515 units in 2023 from a year ago.
  • In Mumbai, which accounted for more than a third of total sales, the number of homes sold rose strongly by 29% y-o-y to 141,480 units in 2023.
  • In Pune, home sales also increased strongly by 33% y-o-y to 82,696 units last year.

“Despite initial challenges, such as rising interest rates, escalating input costs, and surging real estate prices amid global uncertainties, the industry demonstrated exceptional resilience,” said Mr. Vikas Wadhawan, Group CFO of Housing.com, Makaan.com & PropTiger.com. “The pent-up demand following the pandemic served as a key driver, propelling the property market to unprecedented levels. The Reserve Bank of India’s decision to pause rate hikes in April 2023 played a crucial role in boosting buyer confidence,” added Wadhawan.

Mumbai and Pune are India’s two biggest markets, accounting for a combined 54.5% share of the total sales in the country’s top 8 cities in 2023.

India Sales in the Biggest 8 Cities graph

Foreign homeownership rules

While domestic demand remains the main driver of housing market growth in India, foreign homebuyers are also increasing.

A foreign national resident in India does not require the 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.

Residential construction activity increasing

During 2023, there were 517,071 new housing units launched in the country’s eight major cities, up sharply by 20% from 431,510 new launches a year earlier, according to PropTiger.

“Buyer sentiment is also propelling a new wave of launches. This year has seen a notable upswing in property launches, signaling robust demand and elevated consumer confidence in a strengthening economy. The majority of units launched fell within the Rs 1-3 crore range, comprising 31% of the overall new supply in the top-eight cities,” said PropTiger.com.

New launches rose in 7 out of the 8 major Indian cities during 2023:

  • Kolkata saw the biggest y-o-y increase in new launches, surging by about 87% to 15,303 units in 2023 from 8,196 units in 2022.
  • Ahmedabad also registered a strong growth in new launches, soaring by 71% y-o-y to 55,877 units in 2023.
  • In Bangalore, new launches increased by 14% y-o-y to 47,965 units over the same period.
  • Chennai also recorded a huge increase in the number of new housing units launched, rising by 74% y-o-y to 16,153 units in 2023.
  • In Delhi NCR, launches rose by 34% y-o-y to 20,572 units last year.
  • In Mumbai, new launches were up by 8% to 178,684 units in 2023 from a year earlier.
  • In Pune, new launches surged by 40% y-o-y to 105,698 units.
  • Hyderabad is the only major Indian city that saw a decline in new launches – falling by 7% y-o-y to 76,819 units last year.

Residential construction activity is expected to continue growing this year.

“Strategic land acquisition at prime locations as well as along growth corridors in cities is expected to strengthen the supply inflow across cities. Therefore, a robust supply pipeline is projected with many branded developers having announced new launches and their entry into newer markets,” said JLL India.

“Also, launch of diversified products such as plotted developments, low-rise apartments, row houses, and villaments is expected to gain momentum,” added JLL India.

India Launches in the Bigges 8 Cities graph

Inventory overhang remains high, but time-to-sell falling

The total stock of unsold residential properties available in the market remains high, but with strong demand, the number of years to sell the current stock is now declining. 

In Q4 2023, unsold inventory across the seven major cities fell by 1% from the previous quarter but increased by 4.6% from a year earlier. 

Delhi NCR saw the biggest decline in unsold inventory, falling by 19% y-o-y to 66,777 units in Q4 2023, based on figures from a report released by JLL India. The unsold inventory also declined by 16.8% y-o-y to 76,468 units in Bengaluru and by 16.2% y-o-y to 22,316 units in Kolkata.

In contrast, inventory overhang continues to soar in Hyderabad, rising by 28% to 113,161 units in Q4 2023 from a year earlier. Pune also saw a huge increase of 24% y-o-y to 62,030 units. In Mumbai and Chennai, unsold inventory also rose by 13.7% y-o-y to 150,966 units and by 12.9% y-o-y to 30,394 units, respectively.

However, with robust demand, the expected time to liquidate the unsold inventory has dramatically declined.

“An assessment of years to sell (YTS) shows that the expected time to liquidate the stock has declined by 8 months from 2.9 years in Q4 2022 to 2.1 years in Q4 2023, an indication of robust sales growth,” said JLL India.

India Unsold Inventory graph

Low to moderate rental yields

Rental yields in India are generally low, but there are wide variations per city. In Q3 2023, the gross rental yields for apartments in the country averaged 4.54%, according to research conducted by the Global Property Guide in September 2023.

Most cities, particularly Mumbai, Pune, and Hyderabad, have still very low rental yields while a few others, particularly Delhi, are now surprisingly offering moderately good returns.

In Q3 2023:

  • In Mumbai, gross rental yields for apartments are low, ranging from 2.12% to 4.71%, with a city average of 3.43%.
  • In Delhi, one can get rental returns from apartments from as low as 1.65% to as high as 9.19%. The city average yields stood at 5.79%.
  • In Kolkata, apartments offer rental yields ranging from 2.65% to 9.25%, with a city average of 4.93%.
  • In Pune, rental yields ranged from 2.67% to 5.53%, with a city average of 4.02%.
  • In Bangalore, rental yields ranged from 3.2% to 6.54%, with a city average of 4.65%.
  • In Hyderabad, apartment yields were low to moderate, ranging from 3.25% to 5.21%, with a city average of 4.19%.
  • Chennai’s apartments offer rental yields ranging from 3.71% to 5.28%, with a city average of 4.31%.
  • In Ahmedabad, yields ranged from 3.25% to 7.49%, with a city average of 5.05%.

The low gross rental yields in India suggest that the country’s 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 buildings to prevent the market from being flooded with new properties as prices rise. The buyer must ask himself whether these two conditions are met in India.

Key interest rates kept unchanged to maintain price stability

In February 2024, the RBI held its policy interest rate unchanged at 6.5% for the sixth consecutive meeting, amidst persistent price pressures. This followed six straight rate hikes from May 2022 to February 2023.

“As the path of disinflation needs to be sustained, the MPC decided to keep the policy repo rate unchanged at 6.50 percent in this meeting,” said the central bank.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth,” added RBI. 

The reverse repo rate and the bank rate were also held at 3.35% and 6.75%, respectively, after successive rate increases.

Due to the previous key interest rate hikes, interest rates for housing loans are also rising. The Housing Development Finance Corporation (HDFC) recently raised its interest rates further to a range of 8.7% to 9.8%. Almost all leading banks in India have raised their home loan rates several times in the past two years. For instance, the State Bank of India (SBI), the country’s largest lender, has started offering home loans at 8.05% to 8.5%, about 110 to 155 basis points higher than four years ago.

India Key Interest Rates percentages graph

Home loan rates are rising in India

Effective October 1, 2019, the RBI has directed all commercial banks (except regional rural banks), local area banks, and small finance banks to link their interest rates on all retail loans, including home loans, to an external benchmark. Since all floating-rate loans are linked to RBI’s repo rate, most banks have opted to use it as the external benchmark. Interest rates linked to the repo rate are called repo rate-linked lending rates (RLLR), i.e. the repo rate plus the bank’s spread.

Following the central bank’s successive rate hikes in recent years, it is not surprising that home loan rates are also rising. Currently, interest rates for home loans in India’s major banks range from 8.4% to 11.05%, sharply up from just 6.7% to 8.9% four years ago.

HOME LOAN INTEREST RATES FOR SELECTED BANKS, FEBRUARY 2024
Banks Interest rates Processing fees
State Bank of India (SBI) 8.40% 0.35% to 0.50%
Housing Development Finance Corporation (HDFC) 8.55% to 9.10% 0.50% or INR3,000 whichever is higher
Industrial Credit and Investment Corporation of India (ICICI) 8.75% INR2,999/-+ GST
Axis Bank 8.70% to 9.10% INR10,000
Kotak Mahindra Bank 8.70% to 8.75% 0.50%
Bank of Baroda 8.40% 0.25% to 0.50%
Punjab National Bank (PNB) 8.50% to 11.05% 0.35% (Max INR15,000)
Union Bank of India 8.10% to 9.05% 0.50% + GST
IDFC First Bank 8.75% up Up to 3.00%
Federal Bank 10.15% to 10.25% 0.50% of the loan amount
Source: Urban Money

India’s mortgage market is growing very rapidly

Total housing loans in India amount to slightly less than 10% of GDP, low compared to, for instance, China at 20% of GDP, the UK at 88% of GDP, or the US at 81% of GDP. Nevertheless, the combined property portfolios of banks and specialized housing finance companies have risen by 20% annually over the last decade. 

This can be partly attributed to the government’s efforts to boost the mortgage market. Some of the steps taken by the government in recent years included the following:

  • The RBI has relaxed the minimum holding period for which the asset needs to stay on the financial institution’s book before it is eligible for securitization.
  • The RBI has also eased liquidity through open market operations, increased the single-borrower limit for exposure of banks to NBFCs, and reduced the minimum average maturity requirement for external commercial borrowings in the infrastructure space from 5 years to 3 years.
  • The National Housing Bank has increased the refinancing limits that eligible HFCs can access to tide over temporary mismatches.

Housing loans continued to grow by double-digit figures even during the pandemic years.

New home loan interest subsidy scheme underway

In January 2024, the government unveiled that the new home loan interest subsidy scheme for low and middle-income groups, which will replace the discontinued Credit Linked Subsidy Scheme (CLSS), is already in its final stages of preparation.

“A lot of work has gone into the formulation of the scheme. There has been deliberation on the nuances. It is in the final stages. We should be going to the cabinet soon,” said Union Minister of Housing and Urban Affairs Hardeep Singh Puri.

Prime Minister Narendra Modi first announced the government’s plan to introduce a new urban housing credit scheme last year.

“We are coming up with a new scheme in the coming years that will benefit those families that live in cities but live in rented houses, or slums, or chawls and unauthorized colonies. If they want to build their own houses, we will assist them with relief in interest rates and loans from banks that will help them save lakhs of rupees,” said PM Modi. “If the income tax bracket for my middle-class families is raised from ₹2 lakh to ₹7 lakh, it benefits the salaried class, the middle class the most.”

The new scheme is an improved version of the CLSS. The CLSS, a sub-scheme of the Pradhan Mantri Awas Yojana (PMAY), was discontinued in March 2021 for the middle-income group. Subsidies under the CLSS first-time homebuyers get an additional deduction of INR 150,000 (US$1,811) on top of the existing deduction of INR 200,000 (US$2,414).

The CLSS, introduced in 2016, focuses on helping middle-income groups, economically weaker sections, and lower-income groups in the country by bringing down their housing loans monthly installments. It is implemented by the Housing Urban Development Corporation (HUDC) and the National Housing Bank (NHB).

Earlier, in June 2019, the tax breaks on interest paid on affordable housing loans were also increased by INR150,000 (US$1,811) to INR350,000 (US$4,225) per annum. The increased tax breaks are applicable to first-time homebuyers who purchase a house valued up to INR 4.5 million (US$54,317).

In addition, Section 80EE of the Indian Income Tax Law also allows first-time home buyers to get tax deductions on the interest they need to pay on a home loan, up to INR 50,000 (US$604) annually. Said deduction can be claimed until the loan has been fully paid.

Income Tax Act Maximum Deductible Amount
Section 24 INR 200,000 per annum
Section 80C INR 150,000 per annum
Section 80EE INR 50,000 per annum

Acute shortage of affordable housing

Around 80% of dwellings in rural areas do not have basic amenities, such as safe drinking water, toilets, or a bathroom. Millions of dwellings are made of mud, straw, or bamboo.

The worst housing shortage is concentrated in Uttar Pradesh, Maharashtra, Bihar, Andhra Pradesh, Tamil Nadu, and West Bengal. According to the Economic Times Housing Finance Summit, there are just about 3 houses built per thousand population per year as against the required construction rate of 5 houses.

India Urban Housing Shortage graph

Currently, the housing shortage in urban areas is estimated at 19 million units, according to a study conducted by the Ministry of Housing and Urban Poverty Alleviation (MHUPA). The gap is projected to widen further to around 38 million units by 2030 due to continued population growth and increased urbanization.

In 2015, India’s “Housing for All” project called Indira Awas Yojana was launched in an effort to address the housing shortage amongst low-income households in cities. The later version of the scheme has two components, Gramin (rural) and Urban.

PM Modi repeatedly promised that all Indians will have houses of their own. However, target construction was typically not achieved every year.

  • PMAY Gramin Houses: Out of the 2.95 crore houses targeted to be built in rural areas by March 2024, only 2.55 crore have been completed in January 2024, leaving a whopping 40 lakh houses yet to be constructed.
  • PMAY Urban Houses: Out of the 1.17 crore houses sanctioned, only 78.15 lakh houses have been constructed as of early December 2023.

Aware that the housing scheme was running out of time and targets were falling short, the central government recently launched a revamped version of the project – now called Pradhan Mantri Awas Yojana (PMAY) – with more funding support. It was also extended to 2024.

RERA regulations improve housing market confidence

The Real Estate Regulatory Act (RERA), giving rise to India’s first real estate regulator, was finally implemented on May 1, 2016, nine long years after its conception.

The act requires each state to have its regulator protecting buyers’ interests and maintaining speedy dispute resolution. All real estate projects should be registered with RERA, including alterations made and revenues collected.

Developers are now required to pre-approve their advertisements, including pre-launch ads. Developers should also inform buyers of their other ongoing projects. If the developer defaults on its delivery date, it will have to return the money invested by the buyers, with interest. If the buyers opt not to take the money, they will be paid monthly interest for every month of delay. Errant builders can be slapped with a fine of up to 10% of the total project cost or up to 3 years imprisonment. Developers as a result have shifted their focus to project execution, rather than new launches.

With this, project registration with RERA more than doubled from just 43,398 in June 2019 to 99,262 in early 2023, based on an article published by the India Brand Equity Foundation (IBEF).

Moreover, agent registration also increased to 71,514 as of the beginning of last year, up by 21% from just 33,270 four years ago. Maharashtra accounted for the biggest share of registered agents at 54%, followed by Uttar Pradesh (8%), Rajasthan (7%), Karnataka (5%), and Haryana (5%).

By establishing a distinct system to handle homebuyer complaints, RERA has provided relief to home buyers who suffered due to project delays, unfinished projects, additional fees, unfair agreements, and misleading promises, among others. As of November 2023, 116,300 disputes were closed.

India Real Estate Disputes Closed graph

Indian economy growing strongly

India’s economy expanded by a huge 8.4% in Q4 2023 from a year earlier, following year-on-year growth of 8.1% in Q3, 8.2% in Q2 and 6.1% in Q1, buoyed by strong private consumption, and upbeat manufacturing and construction activity, according to figures from the Ministry of Statistics and Programme Implementation (MOSPI). It was its strongest growth since Q2 2022.

For the whole year of 2023, India’s economy expanded by a robust 7.6%, after growing by 7.2% in 2022 and 9.1% in 2021. The country’s strong economic performance could provide a boost to PM Modi’s election bid, who is vying for a third term in office. India is scheduled to hold general elections in April or May 2024.

Before contracting by 5.8% in 2020 due to the Covid-19 pandemic, the Indian economy had been growing strongly, registering an annual average growth 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.

The economy is expected to remain robust this year, with the RBI recently upgrading its real GDP growth forecast for FY 2024-25 from 6.5% to 7%. Likewise, the International Monetary Fund (IMF) has also revised India’s economic growth forecast for 2024 to 6.7%, from its earlier estimate of 6.3%, amidst better-than-expected resilience in its domestic demand.

India’s labor market is tightening. In January 2024, the overall unemployment rate stood at 6.78%, sharply down from 8.65% in December, 8.88% in November, and 9.42% in October 2023, according to figures from the Centre for Monitoring Indian Economy (CMIE).

Inflationary pressures have somewhat subsided. In January 2024, overall inflation stood at 5.1%, down from 5.69% in the previous month and 6.52% in the same period last year. This is now within the central bank’s target range of 2% to 6%.

India GDP Growth and Inflation graph

Sources: