Why is Real Estate so Expensive in India? (2017)

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Rising House Price
Rising House Price

The cost of real estate is increasing every passing day in India. No matter where you live Mumbai, Bangalore, Ahmedabad, or Delhi, the price of housing is touching the sky. Every year we can see a rise of 15% to 60% in real state precises across India.

All metro cities are not any more affordable by any means if you are in second tax bracket. So even thinking of buying a house or flat became unthinkable.

Indian economy is boosting and the proof is current rally of Indian Stock Indexes such as NIFTY, SENSEX, etc.

Even after announcement and possible implementation of Pradhan Mantri Awas Yojana-Housing For All (urban), it seems like they are not affecting the overall price factor. As private builders are still charging roof-top prices.

Here are top 3 reason why real state is expensive in India.

1. Hidden Cost Factor

Every one knows that the price which is flashing on the property brochure is not the real one. That price is for the sake of official home works. The major lag is the hidden price factor.

According to me, in India the black money regulation and generation starts here. Lets understand this with an example.

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Say you are buying a house for 10,000,000 (1 Crore) then you will be asked to give certain percent in cash and not on record. And rest amount will be notarized. Lets break it down to reality.

Total cost is 1 crore, unaccounted money asked is 40 lacs and notarized amount is 60 lakhs. Here this 40 percent is hidden cost factor. (that 40% is just an example, people have seen this, down to 70% also).

2. Low Per-Capita Income

The possible per capita income of India in 2017 is 100,000 Rupees per year. If we break it down to months then, Indian Monthly per capita income is ₹ 8,333.4 (less than $130).

Average house cost in india is around ₹ 2,500,000 (25 lakhs). So mathematically for an average Indian it can take upto 25 years to own a house, Sounds ridiculous right!

Due to ever rising cost and moderate gain in per capita income is another cause why affordability of having own house is still dream for millions.

3. Indian Population

Yes we need to digest that, our own huge population is another big factor in making real estate and housing so costly.

Comparing an example of land mass available for people in two different countries.

Population density of India is 382 person Per Sq. Km. according to Indian Census 2011.

Population density of USA is 57 person Per Sq. Km. According To Statista 2015

So in India same land is required to full fill 7 times more population than USA. Which changes the demand to supply ration. Demand is high and supply is low hence product become more costly.

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Now talking rationally and we can not ignore two issues, First as Indian economy is rising, it is natural for house prices to climb. Incomes are rising not so fast but still rising and home loan interests are low.

The key ratio to watch is the one that relates construction cost to sale price. The construction cost of most flats on the market today will be between Rs 2,000 and Rs 3,000 per square foot, depending on the quality of work and the materials used.

All of this encourage people to invest in real state and build some physical asset. As looking from the builders perspective, they are business man and obviously if demand is high and product can not be rationalized gives them advantage. So they will maximize their profit by increasing housing prices.