Why Housing Prices (almost) Never Fall in India 

The disclaimers first.

The idea for this piece came from the last piece I wrote: How Expensive Homes Are Shrinking India's Future.

This is sort of its intellectual successor, though you don’t need to have read the earlier piece to read this one.

The headline for this piece is very ambitious given that something as complex, convoluted and vast as Indian real estate, cannot really be explained in a few hundred words.

Also, there is barely any data in this piece, unlike the last one. This is more of a speculation – but a speculation built on close to two decades of writing on the subject.

So, why do housing prices (almost) never fall in India? India's housing market doesn't behave like a normal market because it isn't one.

First, there is a huge gap between the haves and the have-nots in India – the top 1% and the remaining 99%.

And the top 1% – once they own a home to live in – must show off that they have arrived in life. Their stocks, mutual funds, bonds, fixed deposits and even bitcoin perhaps, can’t really do that.

For that they need to own real estate, which sends the right signals of having arrived.

So many of India’s richie-rich buy homes as a status symbol and keep it locked. A great example of this are many famous stock market investors who keep hyping up investing in stocks in their public-facing lives, and quietly keep buying more and more real estate in their private lives. Once in a while this news makes it to the media.

Such buying makes things difficult for others looking to buy a home to live in. (We will come to the how later in the piece.)

Of course, there is more to it than just that.

Indeed, investing in real estate makes a good case for overall investment diversification for this lot.

Further, it can also be argued that they really don’t want to invest what they have saved up in newer business opportunities. Which is why they stick to investing in real estate and speculating in land.

Second, when the richie-rich lap up premium and super-premium real estate – as they have been in the last few years – it hurts the average middle class buyer looking for a home to live in.

How? News about newer premium and super-premium projects being lapped up are all over the place. This hurts at multiple levels.

Builders think that it makes more sense to build premium and super-premium housing, thus further edging out the middle-class buyer.

But more importantly it sends out the message that housing prices are going up at a fast pace, and nothing really can stop them. This leads to what behavioural economists refer to as ‘anchoring’. What is anchoring? We will come to that.

In June 2024, G Hari Babu, the then National President of the National Real Estate Development Council, a real estate lobby, had said: “Over 1 crore (10 million) flats (are) lying vacant in India."

These are flats which had been bought for investment purposes. Many such flats remained locked. 

When the news of premium and super-premium projects being lapped up reaches such landlords, they think that real estate prices are going up, and they are likely to get a good deal as well. It’s just a matter of time. They get anchored to this idea and hold out.

As Garly Belsky and Thomas Gilovich write in Why Smart People Make Big Money Mistakes and How to Correct Them: “Anchoring is really just a metaphoric term to explain the tendency we all have of latching on to an idea or fact and using it as a reference point for future decisions. Anchoring can be particularly powerful because you often have no idea that such a phenomenon is affecting you.”

This hurts the genuine buyer looking for a home to live in by far the most. What happens is very simple: The suppliers – that’s the landlords – want a certain price for the homes they want to sell. The customers – that’s the people wanting a home to live in – given their incomes, are not in a position to pay that price.

So, if I were to talk like an economist: the prices don’t match – supply doesn’t meet demand – and an equilibrium isn’t reached. Which is why so many homes remain locked.

The point being: Despite all the talk and the hype around India’s housing market, a large part of it just doesn’t exist, simply because the expectations of the suppliers and the customers don't meet.

As anyone who has done an Economics 101 course knows, just wanting a product or a good or a service isn’t enough: one should also have the means and the capability to pay for it. Only then does it get counted as demand.

In that sense, in many cases, what brokers and builders tout as a price for a given area, isn’t really a price, because where’s the demand that sets that price? It’s all in the mind.

Third, the narrative around India's housing market is largely controlled by builders, consultants and brokers. Unsurprisingly, in this world, prices are always rising and demand is always booming.

Which isn’t really true, the headline for this piece notwithstanding.

Between 2013 and 2020, real estate prices were stagnant in many parts of the country. In a few parts, they fell as well. The National Capital Region is a great example of this. Things only changed during and post the pandemic.

The trouble is when real estate prices fall or remain stagnant, this truth – given the control that builders have over the narrative – doesn’t get highlighted enough. Enough WhatsApp forwards aren’t made.

If you have seen the real estate coverage in the business media, it’s like their coverage of the stock market. They ask builders what do they think of the housing real estate market?

Like they ask investment bankers, how is the IPO market?

Or like they ask those in the business of managing other people’s money, will the stock market continue to go up?

Which is why India needs a proper real estate index for starters – so that there’s some talk around real estate prices falling or remaining stagnant as well. The ones currently available aren’t broad enough and come out too late to be of any use.

Fourth, many people don’t really calculate returns on owning real estate properly.

The way it typically works is – one big number – the buying price – is subtracted from another big number – the selling price – and we live happily ever after.

Many real estate owners don’t really take the maintenance cost and the risk of owning real estate into account while calculating returns. Over and above this, the time value of money is rarely taken into account.

Or the fact how illiquid real estate can be: I mean you can’t really sell off one bathroom when you need the money. Can you?

Or that it’s easy to buy real estate, but it’s difficult to sell that very home a few years later. (I mean we all know enough and more people who are struggling on this front.)

Or that brokers are interested in selling newer homes and not ones that they had sold to you a few years back.

All these risks and more rarely get taken into account while talking about returns.

Fifth, the black money that enters real estate keeps circulating. It rarely leaves. This is difficult to quantify because black money, by definition, leaves little data.

Someone who had invested black money in housing gets more black money when they sell.

Now, this black money has to be deployed somewhere. It finds its way back into real estate.

In fact, this is how many of the richie-rich end up investing in affordable housing, driving up prices there as well.

Sixth, in recent years, the fascination of India’s retail investors of owning stocks – directly and indirectly through mutual funds – has also had a role to play.

We have seen a spate of initial public offerings in the last few years. In these offerings, investors and owners have sold shares they own in the companies being listed. These shares have been lapped up by retail investors.

Promoters of already listed companies have also sold shares.

When promoters cash out through IPOs or stake sales, some of that wealth inevitably seeks another store of value. In India, that often means real estate.

That, in turn, reinforces the belief that prices can only move one way, brings anchoring into the picture, and as explained earlier, makes existing owners even more reluctant to sell.

The point is this: India's housing market doesn't behave like a normal market because it isn't one.

It is driven as much by inequality, status, black money, narratives and behavioural biases as by demand and supply. Millions of homes are owned by people who can afford to wait indefinitely.

So, when buyers can't pay and sellers won't cut prices, the market doesn't clear – it freezes. Homes remain vacant, affordability worsens.

In most markets, weak demand leads to lower prices. In India's housing market, weak demand simply leads to fewer transactions. Prices don't fall. The market just waits. Sometimes for years.