Introduction
For the past decade, I’ve been living in a rented apartment in the National Capital Region (NCR). As a tenant, I have no control over the walls or the ceiling. Without the landlord’s permission, I can’t even hammer a nail to hang a favorite painting, let alone repaint the walls. This lack of freedom sparked a thought a few weeks ago: why not buy a small house or flat of my own? After years of hard work and saving every penny, I assumed I’d have enough to afford a modest home in a bustling region like NCR. But the reality of the real estate market shattered my hopes. The soaring property prices made it clear that not only could I not afford a flat outright, but even the monthly EMI for a home loan was beyond my reach. This experience led me to explore why owning a home remains an elusive dream for millions of Indians, particularly in urban areas.
The Harsh Reality of India’s Real Estate Market
To understand the scale of the issue, I reached out to friends living in cities like Mumbai, Bengaluru, and Pune. Their stories echoed mine, revealing a grim truth: 59% of Indians believe they’ll never be able to afford a home. The numbers paint a stark picture. In urban India, the average price-to-income ratio—a key measure of housing affordability—is 11. This means that to buy a home, the average person would need to spend 11 years’ worth of their annual income, assuming they save every penny. In the Mumbai Metropolitan Region, this ratio skyrockets to over 14. For context, a price-to-income ratio of 5 is considered affordable. In contrast, developed nations like the USA (3.6), Australia (7.6), and Germany (9) offer far more affordable housing relative to income.
For example, renting a 6×3-foot space (equivalent to a single bed) in a city like NCR costs around ₹11,000 per month, translating to a staggering ₹2 lakh annually. A modest 400-square-foot 1BHK flat could set you back ₹44 lakh. For the average Indian, these figures are astronomical, forcing many to rely on home loans. However, even with a loan, the monthly EMI often consumes 61% of a person’s income, making it unsustainable for most.
Why Are Property Prices So High?
The root cause of skyrocketing real estate prices in urban India lies in the basic economic principle of supply and demand. As India’s urban population grows rapidly, the demand for housing in cities far outstrips supply. Metro cities like Mumbai, Delhi, and Chennai are densely populated, with limited land available for residential development. For instance, Hyderabad has over 18,000 people per square kilometer, while Delhi has more than 11,000. This high population density creates intense competition for limited housing, driving prices upward.
Moreover, urban infrastructure has failed to keep pace with population growth. Most people want homes close to offices, schools, or markets, but densely populated areas can’t accommodate everyone. This leads to a “one fruit, hundred buyers” scenario, where buyers are willing to pay exorbitant prices to secure a property. Between 2020 and 2024, property prices in India’s top 10 cities grew at a compound annual growth rate (CAGR) of 9.3%, while incomes grew at a mere 5.4%. Over the past three decades, house prices have surged 15 times, far outpacing income growth.
Structural Issues in the Real Estate Market
Beyond supply and demand, several structural issues exacerbate the affordability crisis:
1. Low Floor Space Index (FSI)
India’s urban planning regulations, particularly the Floor Space Index (FSI), limit the height of buildings. FSI determines how many floors can be built on a plot of land. In Mumbai, FSI ranges from 1.33 to 5, and in Delhi, it’s between 1.2 and 3.5. Compare this to New York (15), Tokyo (20), or Singapore (25), where higher FSI allows for skyscrapers that maximize land use. India’s low FSI restricts vertical expansion, leading to a shortage of housing units. As of 2024, India has only 122 skyscrapers, compared to 3,300 in China and nearly 900 in the USA.
While the government argues that low FSI prevents over-concentration of population and accounts for seismic risks, experts call these excuses outdated. They advocate for revised building codes and city planning to increase FSI, which could make housing more affordable by increasing supply.
2. Inefficient Land Use Policies
Reports from the Center for Social and Economic Progress (CSEP) and the India Infrastructure Report 2023 highlight flawed land use policies. Many Indian cities lack master plans, leading to unplanned and unscientific urban growth. Former NITI Aayog CEO Amitabh Kant has noted that over half of India’s statutory towns grow without proper infrastructure guidance. This makes it challenging for developers to plan and finance residential projects, further constraining supply.
3. Lack of Transparent Data
The absence of credible data on land use and property allocation hinders effective city planning. Without clear information on which land is designated for residential, commercial, or government projects, developers and buyers face uncertainty. This lack of transparency allows a few dominant market players to control the real estate sector, artificially inflating prices. A December 2024 study revealed that over 1 million housing units remain unsold, as developers hold them back to maintain high prices.
4. Black Money and Market Manipulation
India’s real estate market has long been a haven for black money. Buyers and sellers often transact part of the payment in cash to evade taxes. For instance, a ₹1 crore flat might have a circle rate (government-set minimum price) of ₹40 lakh. The buyer pays ₹40 lakh officially and the remaining ₹60 lakh in cash, reducing the tax burden for both parties. This practice inflates property prices and makes the market less affordable for honest buyers. Additionally, benami properties (purchased under fake names) are used to park black money, further distorting the market.
The Emotional and Cultural Value of Homeownership
In India, owning a home is more than a financial decision—it’s a cultural and emotional milestone tied to social respect and prestige. From high-earning NRIs to the lower-middle class, everyone aspires to own a home. A Reserve Bank of India report notes that Indian households invest 77% of their total assets in real estate, compared to 62% in China and 44% in the USA. This emotional attachment drives people to stretch beyond their financial means, exacerbating the demand-supply imbalance.
The COVID-19 pandemic further intensified this desire. Work-from-home arrangements increased savings for some, while market uncertainties underscored the need for a stable home. Post-2020, demand for owned homes surged, pushing prices even higher.
Can the Government Bridge the Gap?
The government has introduced measures like the Digital India Land Records Modernization Program and linking Aadhaar to land documents to curb black money and improve transparency. However, their effectiveness remains uncertain. Experts suggest that increasing FSI, revising building codes, and improving city planning could significantly boost housing supply and affordability. The World Bank has criticized India’s FSI regulations as irrational, arguing they hinder economic growth.
Conclusion
For millions of urban Indians like me, the dream of owning a home feels increasingly out of reach. Skyrocketing property prices, driven by limited supply, flawed policies, and market manipulations, have created a real estate market that’s unaffordable for the average person. While cultural and emotional factors fuel demand, structural issues like low FSI, poor urban planning, and black money keep prices sky-high. Until these challenges are addressed, the aspiration of homeownership will remain a distant dream for many. If you’re facing similar struggles in your city, share your thoughts—what’s the real estate market like where you live?