Real estate price hikes may push out end-users: Housing.com CEO

Drawing an analogy to musical chairs—when the music stops, some are left without a seat—the real estate industry could face a similar fate if price hikes persist. Housing.com CEO Dhruv Agarwala believes that soaring prices may drive end-users out of the market.

“(In the first) two quarters (of this fiscal), we've seen demand slow down quarter on quarter, which also suggests that things are feeling off a little bit,” says Agarwala.

A recent Magicbricks report revealed a 15.1% drop in pan-India housing demand during the October-December quarter, primarily driven by a sharp decline in Tier-1 cities such as Gurugram, Noida, Greater Noida, and Kolkata.

“(We’ve) reached a stage where I'm a little concerned with this kind of price hike because then real buyers get crowded out of the market. (Real estate) becomes unaffordable once again, and investors come in,” Agarwala says.

Agarwala warns that market speculation is keeping affordability stretched, signalling a potential early warning for a future downturn. This concern is reinforced by the October-December Propindex report by Magicbricks, which reveals that despite a slowdown in demand, property supply grew by 4.3%. Additionally, price growth has begun to decelerate, dropping from 8.3% in the July-September quarter to 5.1% in October-December, hinting at a possible market correction ahead.

“(Once) the speculators come in and they keep driving (prices) up for a certain period, (when) the music stops, people are left without a chair. That's when the crash happens,” Agarwala adds. “That I'm hoping doesn't happen, but if there's too much of greed, developers keep raising prices, (and) end users will get crowded out.”

“I don't call (the present) a peak in that sense but, (if) we see more price hikes happening with the new launches, then, we might end up seeing the whole vicious cycle kicking in, where you'll see lots of unsold projects, people getting worried about prices going down, speculators will stop buying,” adds Agarwala.

Agarwala emphasises that rising prices won’t drive real homebuyers to purchase the homes they need; instead, they will primarily benefit the wealthy, who continue accumulating multiple properties.

“There's so much of urbanisation happening in India, wage levels are going up. So obviously (people) want home. (But), demand means want backed up by purchasing power, that purchasing power will get compromised, (when) the prices become too high. The real end user then will not buy, it will be rich buying homes number 3,4, 5, 6,” Agarwala says.

This trend is validated by the PropIndex report by Magicbricks, which found that 6 out of 13 cities analysed—including Gurugram, Mumbai, New Delhi, and Noida—showed a strong preference for luxury properties priced above ₹10,000 per sq. ft., highlighting the growing demand for premium living spaces in these urban centres.

Agarwala, however, says that the price hike in the real estate is not merely because of speculator rush, but also because of the stock market boom.

“Stock market boom has led investors to have a surplus of money waiting to be reinvested in real estate,” Agarwala says.

Agarwala also added that while recent price hikes seem bitter, “from a pricing standpoint, between 2015 and 2020, in real terms, (real estate) prices actually came down because on nominal terms, in most top tier markets, prices on average went up by 2-3% (but) inflation (was) higher than that. (So) in real terms prices actually came down.”

This contributed to pushing affordability immediately after the market opened for the pent-up demand during the pandemic.

Agarwala points out that had the RBI not cut rates in the February MPC, borrowing costs would have remained high, further driving up housing prices. However, the recent RBI rate cut and tax relaxations in the February budget could provide relief, as both measures are aimed at boosting private consumption and improving market sentiment.

“I don't think in the next 3-4 years, anyone will see any crash happening there at (the upper end) level. It's at the mid-end of the market, or slightly higher than that, where there will be a problem. Because beyond the point, people's wage levels will not keep up with the price,” adds Agarwala.