Real Estate Crisis: Is India Facing A Housing Bubble?
Introduction
In recent years, the Indian real estate market has been the
subject of much debate and speculation. Some experts have raised concerns about
the possibility of a bubble, citing factors such as rapid price appreciation,
high levels of unsold inventory, and a slowdown in sales.
Home prices in almost all large Indian cities are unaffordable. In cities like Mumbai and Gurgaon, buying a home demands decades of savings. In fact, as The Times of India reported on June 24, 2025, it would take 109 years of savings for the richest 5 percent of families in Mumbai to be able to buy a home to live in. In Gurgaon it would take 64 years. For Bengaluru and Delhi, the figure was at 36 years and 35 years respectively.
Now, these are average numbers, and like all average numbers
they hide more than they reveal. Nonetheless, even if it would take half the
number of years, the message is simple: Home prices in Indian cities have
reached extremely high levels.
Why Bubble might be forming
- When the price of premium real estate goes up it gets widely reported in the media. This sets new price benchmarks for the market for homes at large – or what psychologists and economists like to refer to as anchoring.
- Small individual investors who had bought homes as an investment in the past, think that their homes are also worth more now. So, they get ‘anchored’ to the idea of higher home prices by looking at all the reports going around in the media.
- The trouble is that not everyone is making the kind of money that the Richie-rich are. Hence, a lot of such homes, which had been bought as an investment, lie unsold. Further, the brokers seem to be interested in selling newer homes being launched by builders and tend to push those.
- The trouble is that the focus is usually on all the newer homes being built and sold, and also on premium homes, and there is no data or reporting on all the homes having been bought as an investment and which are lying locked.
According to data from real estate consultant Knight Frank,
2024 saw annual sales grow by 7%, with sales volume surging to a 12-year high.
However, during the same period, the market saw inventory of unsold homes rise
by 5% year-on-year to over 4.95 lakh units.
The consultancy says, "While sales have seen healthy
growth overall, the unsold inventory has consistently increased since 2020 as
supply levels have exceeded sales."
Data shows that unsold inventory in higher ticket sizes, that is, homes priced between Rs 2-5 crore and Rs 5-10 crore, have grown by 54% and 52% year-on-year, respectively. The agency warns that the segment "warrants a closer look" to assess if it is approaching "bubble territory or a potential correction."
According to Angad Bedi, the Chairman and MD of real estate
services provider BCD Group, this is just the "cyclic nature of Indian
industry".
"The industry’s robust performance over the last five
years has provided developers the room for being bullish on the industry,
enabling them to confidently launch various projects across price points,"
said Bedi.
Supply-Demand Imbalance
India’s urban housing market is sitting atop a swelling pile
of unsold stock—5.59 lakh units across the top seven metros, as per Anarock’s
Q1 2025 report. Though the total is 4% lower year-on-year, the numbers mask a
deeper structural problem—homes are being built, but not for those who actually
need them.
Across cities, the segmental data tells a grim tale: the
developers are prioritising luxury where returns are higher, not where need is
pressing. But the buyers for these luxury flats aren’t lining up, and the
result is dead capital, delayed projects, and a distorted market. On the other
hand, shrinking disposable incomes have pushed many end-users to rent, not buy.
Arguments against Bubble
It's important to note that the rapid price appreciation
witnessed in recent years is not uniformly distributed across all markets.
While some cities, such as Mumbai and Delhi, have seen significant price
increases, others have experienced more modest growth. This suggests that the
market is not overheated but rather experiencing a natural correction after
years of undervaluation.
The high level of unsold inventory is not necessarily a cause for concern. In fact, it can be viewed as an opportunity for buyers to negotiate better deals and for developers to focus on completing their existing projects.
Moreover, the government's initiatives, such as the Pradhan Mantri
Awas Yojana (PMAY) and the Credit Linked Subsidy Scheme (CLSS), are expected to
boost demand for affordable housing, which could help absorb some of the unsold
inventory.
The slowdown in sales over the past few years can be
attributed to temporary factors such as demonetisation and regulatory changes.
However, these measures are ultimately expected to benefit the market by
increasing transparency and reducing the scope for black money transactions. As
the dust settles and buyers regain confidence, sales are likely to pick up,
driven by factors such as rising incomes, urbanisation, and favourable
demographics.
Conclusion
While the Indian real estate market has faced
its share of challenges in recent years, it is far from being a bubble. The
concerns raised by some experts, such as rapid price appreciation and high
levels of unsold inventory, are not indicative of a market that is overheated
or unsustainable. In fact, a closer examination reveals that the market is undervalued
and poised for significant growth in the coming years, driven by factors such
as rising incomes, urbanisation, and favourable demographics.
Moreover, the Indian real estate market presents an
incredible growth stock opportunity, with the potential for consolidation,
foreign investment, and value creation. As the sector matures and becomes more
professionalised, it is likely to attract even greater interest from investors
looking for long-term growth prospects.
As such, it is clear that the Indian real estate market is
not a bubble but rather an underrated and exciting investment opportunity. With
the right policies and initiatives in place, the sector has the potential to
become a key driver of India's economic growth and a source of significant
value creation for investors.
References
https://www.outlookbusiness.com/corporate/indian-real-estate-are-we-on-the-brink-of-a-bubble
https://www.newslaundry.com/2025/06/24/sips-are-the-hidden-link-in-indias-housing-bubble
https://www.jll.com/en-in/newsroom/indias-luxury-homes-dominate-2024-sales-crossing-50-percent-mark
Blog by Gourav Pradhan and Nidhi Attri, M.Com Students.
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