While house prices stagnate due to low demand and rising inventories, the average rent in India’s financial capital Mumbai has risen by 26% between 2012 and 15.
Financial adviser Arthayantra said property prices rose by 70% due to investor demand in the same period but as sales began slowing last year, prices only fell by 0.42%.
The housing market stagnated as lenders to real estate projects, private equity firms, alternative financial firms, and banks prevented realty firms from cutting prices to protect their investments.
Earlier, buyers would often pay 30% of the total sum in cash (usually black money) so they have to pay stamp duty only on the remaining 70%. Now as buyers are finding it difficult to pay in cash due to demonetisation, house sales have fallen.
Moreover, with the EMI to rent ratio rising, more people would prefer to rent a house. “In 2004-05, the EMI to buy a house used to be about two times your rent. Today, the EMI is around 4-5 times the rent. So, if I am paying a rent of ₹1 lakh a year, my EMI would be around ₹4-5 lakh. Unless the difference reduces to 2-2.5 times, I don’t see many people coming forward to buy,” said Pankaj Kapoor, CEO of real estate research agency Liases Foras.
The agency said around 80,000-90,000 apartments in Mumbai had not been sold.
Arthayantra CEO Nitin Vyakaranam said the rising inventories indicated that people couldn’t afford to buy the houses at the current prices. Therefore, he said, people chose to rent houses.
Analysts expect rentals to rise further due to continued migration. “We expect (house) prices to come down only in 18-24 months. Till then, people will wait and watch,” said Vyakaranam.