Reasons behind the declining demand for buying houses in India

The Dark Side of The Indian Real Estate Market: Why buying houses are becoming next to impossible in India?

The Residential Reality Consumer Sentiment Outlook – Jul-Dec 2022 by and National Real Estate Development Council (NAREDCO) found that 47 percent of the respondents to the survey prefer real estate as the investment option. But, 21 percent of the respondents still consider the stock market an investment option. 

Buying a house in India has always been a status symbol and a necessity. Still, more people are running away from buying homes due to rising real estate prices and many other reasons. This article will show the reasons behind this massive shift in behavioral change among Indians. 

The high-interest rates on Home Loans in India

Generally, interest rates on home loans in India are between 7 to 11 percent. Whereas in countries like the USA, the housing loan interest rates lie between 2.5-5 percent. 

Lower Floor Space Index (FSI) in Indian cities

The Floor Space Index (FSI) of a piece of land is the maximum permitted area for construction. Therefore, the higher the FSI, the more houses are built and the lower the rent rates for people. The FSI of some major Indian cities, including Mumbai, Delhi, Kolkata, etc., is 1.33, 3.5, and 3, respectively, compared to New York, Hong Kong, and Shanghai, the FSI is 15, 12, and 08, respectively. 

The darker side of the Indian Real-Estate Industry

The real estate industry in India is a huge nexus between politicians and builders, leading to corruption and tax evasion, skyrocketing the prices of houses. One can’t invest black money into stock markets or other taxable institutions; hence real estate industry is the perfect place to turn people’s black money white. Builders take only the circle rate (the minimum price of a property at which it can be sold) of a flat in white, and the rest of the capital is paid in black. This way, builders get a massive chunk of money, and the buyer’s black money is invested without paying huge taxes. But, this kind of dealing increases house prices for ordinary people with no black money. 

Bribery is another dark side of the Indian real estate industry. A few government approvals are required to start a property construction which can take up to 2-3 years compared to other countries like Singapore, which takes only a couple of months. This long time in India can be cut short by bribery at almost every step, which hikes property prices extensively. Experts say if the real estate market’s corruption ends, the prices of properties will immediately decline by 20-40 percent. 

Millennials prefer to buy something other than houses.

With the millennials taking over the economy, owning a home is becoming less popular among them. Millennials are more focused on owning a business and traveling the world than owning a property. Renting a house is no more disparaging to them. Also, buying a home would add to the stress of paying huge EMIs that will take away 30% of their salaries, as renting a house is cheaper than paying monthly installments for buying a home. Nowadays, people want the flexibility of changing jobs, moving to different places, and avoiding getting stuck in one place. 

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