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The Indian residential real estate market has not been doing well for some time now. According to the Reserve Bank of India’s House Price Index (RBI HPI) the average annual growth rate for FY 2020-21 was 1.93% as compared to 23.75% in FY 2011-12 when the index started. The index tracks home prices in 10 Indian cities; Mumbai, Delhi, Chennai, Kolkata, Bengaluru, Ahmedabad, Lucknow, Kanpur, Kochi, and Jaipur.

Growth in Real Estate Prices

As can be seen from the graph above, the HPI index has consistently been trending downward except in 2014-15 where a slight recovery can be seen before falling again. As per data released by RBI, in Q4 2020-21, the HPI declined for Delhi, Bengaluru, Kolkata and Jaipur while increasing for the other 6 cities.

The number of houses sold in the Q4 2020-21 was 5% lower as compared to the same period last year and prices per square foot increased by a national average of 3%. The COVID 19 pandemic has further worsened the condition of the residential real estate market. This was due to work from home policies being implemented during which many individuals went back to their hometowns and still have not fully relocated back due to continued work from home thereby reducing the overall demand for renting and applicable rent rates. 

Additionally, due to lockdowns, construction was immediately halted and large numbers of labourers migrated back home due to loss of work and were unwilling to come back once the lockdowns were lifted due to fear of the virus. This caused lengthy delays in residential projects among others making residential real estate a less desirable investment. 

Furthermore, investing in a house provides low levels of liquidity and during a time such as the COVID pandemic individuals are losing interest in illiquid investments. They are focusing more towards liquid assets as can be seen by the increase in the number of demat accounts opened in FY 21; 14.2 million demat accounts were opened (with 1.9 million in March 2021 itself) as opposed to 4.9 million in FY 20.