Until the dawn of the new century, real estate developers built homes on a foregone assumption- there will always be someone willing to buy, no matter how far it is from the city. That’s how suburbs started to be built, becoming part of the familiar city we know so well.
For middle-class, salaried employees, the suburbs were the best place to stay- and buying a house became the most important life purchase you made. That’s how our parents secured our futures- with all the comforts of Roti, Kapda aur Makaan required- and with some money left over for emergencies as well.
Fast forward to today, the situation has completely changed. Owning a home has become an achievement for young people, as none of the homes they’d like to stay in match their economic budgets. Millions are forced to rent, many of them forever, as the housing crises reaches enourmous proportions.
For most, buying a home remains a dream that cannot be attained, affecting their marriage prospects and even their decisions to plan for a child. Neither the government, real estate developers or civil society have been able to address this issue, as the challenges are multifaceted with no immediate solution. Here’s why:
Land Has Become Ridiculously Expensive
The cost of land has become the single biggest reason home costs remain astronomical- and we are not even talking about the price increases of bricks, cement or steel. In major Tier 1 cities, land accounts for almost 50% of the total cost of a housing project. Banks In India do not lend money to developers to purchase land, so many are forced to borrow money from private lenders at high interest rates (often between 18-22%) locking in the price increase before they even lay the foundation.
These high upfront costs force the builders to often target premium buyers- even as they add luxury amenities as they simply cannot afford to build mid range or affordable apartments to make a reasonable profit.
The Mid-Range Home is Disappearing
Earlier, homes for the middle class were priced between Rs.40-80 lakh. Today, that middle tier does not exist, especially in highly dense cities.
Construction costs for builders have increased by over 35% in recent years, making it impossible for them to sell within this range. Meanwhile, the government’s definition of ‘affordable housing’ remains stuck at an outdated price cap of Rs.45 lakh, making it unprofitable for developers to even consider building them.
About a decade ago, affordable housing and mid range homes accounted for almost 75% of home sales. Today, luxury apartments make up more than half of the entire market. Builders, as a result, are now targeted high net worth individuals, tech workers with stock options and senior corporate executives, leaving normal middle class buyers with almost no inventory to choose from.
High Salaries Aren’t Keeping Up With Home Prices
Though it can be easy to assume that the ambition of buying a home is the highest for low income earners, but the reality is far different. Reports suggest that even tech professionals who earn upwards of Rs.1 crore annually do not have the budget to buy a decent 3 BHK in either Delhi or Mumbai.
To put it into perspective:
- In global cities like New York, top earners earn significantly higher relative to median property costs.
- In India’s top cities, property prices have skyrocketed to 15 to 25 times the annual income of an average corporate worker.
Even if a family manages to save enough for a 20% down payment, taking on a 20-year home loan for the remaining amount consumes a massive chunk of their monthly take-home pay.
The “EMI Trap” vs. Financial Reality
Many people think “If my monthly salary can cover the Equated Monthly Installment (EMI), I can afford the house.”, but that mindset is a trap, as the loan in question will take 20 years to pay, assuming you have a consistent, incremental income to pay it back. Also, hidden costs like maintenance fees, property taxes, stamp duty, interior work and others can add another 10-15% to the property price, exclusive of the loan.
For many working professionals, renting a home is far cheaper and more economical than paying a monthly EMI, even though the uncertainty of being evicted at the landlord’s whim persists.
What Lies Ahead?
For the Indian middle class, a home has become an aspirational purchase rather than a one-time necessity. With no place left to go in big cities, many are moving back to their hometowns as the only alternative to buy a place they can call their own.
Living in Delhi, Mumbai or Bangalore is not practical anymore, as rising prices have forced them to seek Acche Din back home, in a place where they’d never thought they’d go back to- to the small towns they came from.
