Soaring prices are creating a housing bubble; affordable housing price ceiling needs to be revised: Housing.com CEO

The rapid rise in real estate prices over the past three years, in the wake of the pandemic, has created a bubble that risks scaring off some potential homebuyers, warns Dhruv Agarwala, group CEO of Housing.com and PropTiger.com.

Since the second wave of the COVID pandemic subsided in mid-2021, real estate prices have been steadily rising. The housing market has seen a sharp rise as prospective homebuyers and the undecided join the market to buy their dream homes. Some affluent consumers have also been enthusiastic about buying second homes or investing in real estate as prices have started to rise after many years.

After nearly a decade of being subdued – between 2013 and 2021 – property price growth continues to attract investors and homebuyers. However, this could soon come under pressure as home prices skyrocket. Data suggests that average home prices in the 7 largest cities have increased by 35-50% in the past five years. This could pose a challenge for some homebuyers in the coming days.

According to Agarwala, real estate prices are currently in a bubble due to high price inflation since 2021. “There is a fear that end users may exit the market (for the same reason),” Business Today editor Sourav Majumdar told Business Today during a panel discussion at the India Today-Business Today Budget Roundtable 2024.

Talking about the social housing sector, which has come under pressure in the wake of the COVID-19 pandemic, Agarwala appreciated the government’s decision to allocate Rs 2.2 lakh crore in central assistance for the Pradhan Mantri Awaz Yojana Urban scheme to build 1 crore social housing units in urban areas.

It points to unmet demands from industry stakeholders – such as a revision of the price cap for affordable homes, which has remained the same since the scheme was launched in 2015 – at Rs 45 lakh. Real estate agents are demanding an upward revision of the price cap – at least to Rs 75-85 lakh per unit and an increase in the area limit for urban affordable homes from the current 60 square metres.

While there has been some opposition to the Finance Minister removing indexation of real estate assets in the budget, Agarwala is confident that the move will not affect housing demand in the long run. “In the short term, there may be some confusion about purchases made recently. But I don’t see any adverse impact on long-term capital gains,” he says.