Rapid urbanisation and the subsequent demographic changes are defining the demand for homes in cities. India is a rapidly-urbanising country. According to the UN World Urbanization Prospects 2018 report, India’s urban population is expected to grow from 410 million in 2014 to 814 million by 2050. While today 34% of Indians live in cities, this figure is expected to rise to 46% by 2025.
Four of India’s cities, including Ahmedabad, Bangalore, Chennai, and Hyderabad, with currently 5 to 10 million inhabitants are projected to become mega cities in the coming years. Urban areas produce most of India’s GDP. A report by McKinsey & Company estimates that cities could produce as much as 70% of India’s GDP by 2030 and lead to a four-fold increase in per capita incomes across the country. This doubling of income means that people in cities have more disposable income. They can now afford to spend more on housing. Buying a home is an expensive proposition, so an increase in income usually leads to a bigger rise in demand for homes.
While sales of homes fell during the pandemic time, housing sales took off when the lockdown was lifted. There has been an exponential increase in sales and launches, since 2020. Residential sales in cities are now back to the pre-pandemic levels and in some cases even better. In metro cities, because of the prevalence of work from home culture, home buyers are looking to move into bigger houses. Buyers are upgrading from 2 bhk to 3 bhk homes, to accommodate their growing needs.
These buyers show a marked preference for ready-to-move-in homes rather than under construction ones. There are two reasons for this. One, there is an urgency among buyers to upgrade their homes and secondly, ready-to-move in properties offer buyers a sense of security that they will get the house they have paid for. In fact, the quick recovery in home sales after the pandemic is largely because of an increase in demand for ready-to-move-in properties. This is true of tier two and three cities as well, where demand for homes is soaring.
The sudden surge in demand for homes poses some challenges. Supply of housing in cities will have to increase to meet the needs of different urban household types and income levels. If the demand for urban housing is not met by adequate supply, it can cause many problems. The most important being a significant rise in home prices, much faster than incomes. This can create affordability issues, especially among first-time home buyers, who struggle to save for down payment.
Cities are not just home to the rich. Demand for homes comes from different income groups. Urban areas already have a shortage of 10 million units. Estimates suggest that 25 million units of affordable housing will be required by 2030. Unless real estate dramatically steps up construction of homes, home prices will continue to rise. A recent report by real estate industry body, CREDAI, shows that average housing prices in the country have increased by 4% in the last one year. Delhi-NCR had the highest increase at over 11%. If home prices become unaffordable, it can affect the buying capacity of home buyers. More housing construction can help meet the increased demand for homes in cities, while keeping home prices at affordable levels.
(By Abhishiekh (Andy) Andlay, founder of Andlay Estates)