You will be surprised when you know these three reasons why buying a home is so expensive in India Affordable and well-located housing options are rapidly running out in top cities of India You would think that the cost of steel, cement or construction is bound to increase so homes will be expensive but this is not the reason at all.

On one hand flats worth Rs 100 crore are being sold in India and on the other hand maximum people are not able to buy a normal 2 BHK or 3 BHK But the first question that arises is how this affordability is calculated and how expensive is this property in India Now there are two main ways to calculate affordability First is Price to Income Ratio How is it calculated

We take the price of an average 90 sq.m. home Now any family needs a 2 BHK or 3 BHK to live Now if we are calculating it for a city then we will divide it by the median income of that city.

Now if we have to calculate affordability here, when the PTI in a country or a city is less than five, then we say that houses are affordable. Now there is a research by the Center for Social and Economic Progress which they published in 2023, in which they calculated the PTI of India which came out to be around 11, that is, where we are talking about five, on an average India’s number for affordability is 11, that is, property is very expensive here.

What does this mean that on an average people have to buy a house here equal to 11 years of income. Now this is the average number of our India, in some cities this number reaches 40. In Mumbai this number was up to 40 in 2023 and if we compare it with other countries, then we will find that all developed countries are more affordable than India.

In America this number is 3.6. In Germany this number is nine. And in developing countries this number is generally higher. Actually, the general perception might be that people think that homes will be affordable in developing countries. For China, the number is 29, for Sri Lanka, the number is 26. Now, India is at 11. According to them, it might not seem that high.

But still, homes are quite affordable here as well. So, this is our PTI. Now, another number is the EMI to income ratio. When we calculate this, we take the EMI of a normal house for which we will take a loan for 20 years and within that, we will be paying Rs 80 as loan. So, we again divide this EMI by the median income.

So, if the ratio is less than 50, then we say that our homes are affordable there. So according to a study by Magic Bricks, which they did in August 2024, at the level of India, this number has increased to 61 from 46 in 2020. So, now if we look at our cities, Mumbai tops the list of least affordable cities.

Mumbai is at number 116. Then New Delhi is at number 82, Gurgaon is at 62 and Hyderabad is at 61. So, which are the most affordable cities in India? In Ahmedabad, the number is 41. So, obviously, it is less than 50. So, this has become affordable for us. Chennai is at number 41 and Kolkata is at number 47.

So, these three have become our most affordable cities. So, looking at both these numbers, one thing is clear to us that property in India is quite expensive. As we said earlier, the increase in cost of steel, cement and construction is not the main reason because all these things are linked to general inflation and our income or salary also increases to cover the inflation

But if we look at housing prices on the other side, in India in last 30 years, real estate prices have increased by 9.3% year on year but our inflation is 6% year on year, so clearly housing prices are increasing more than our inflation, so why are housing prices increasing?

See, for this we have to understand a very simple thing that how the demand and supply mechanism works in real estate. Now here we have three main reasons due to which there is an imbalance in demand and supply, due to which we have rising prices.

The first and the biggest reason in this is the constraint and unpredictable supply of forest land. Now let us understand what this forest land is and how its supply is constrained. Now for this I will again quote that 2023 study of CSCP, according to which only 28 cities in India have an approved master plan.

Now what is a master plan, see in the master plan first of all a map is made, inside which different areas are identified for infrastructure, schools will be built here, this infrastructure will come here, hospitals will be built here, the biggest gap which is in India, we make the map but stop here,

We do not add clear financing with it that when will this project come, there is no timeline attached to it, so because this finance and timeline is not so strictly controlled, due to this many developers buy large land parcels and they can easily release the supply gradually in the future

That is, suppose someone has 15000 acres of land and he is bringing his project in just 2 acres, then see the supply of land has become very limited and now he can obviously control the price, but if there was a clear timeline in the master plan, suppose if we have to build 50000 flats every year then it will be built according to the timeline, how will they have financing, how many developers will have to be brought, If there is a greener approach, then the supply of this much land will be limited

Land is the biggest raw material in real estate, due to which the prices increase here because the supply is kept very limited here, if we take the example of other countries, then in a country like Singapore, a more green master plan is made. That is, if you make an overall map and plan the project in it, then a separate plan is also made for each project.

Where will the financing come from, what will be its timeline, every approach is kept there so that they know the clear timeline that in how much time the entire master plan will be implemented. The second main reason is the shadow economy in India. You must have understood what shadow economy means. This is the income which is not accounted for.

Many people do under-invoicing in their business or deal in cash. Many businesses do cash economy, no tax has to be paid on it, so we call it black money. So how big is this economy in India? According to a study, our shadow economy was about 17 percent of GDP in 2016 which has now come down to about 13.6 percent.

Now there are different estimates of this, according to some estimates it was 13 percent, according to some estimates it was 10 percent. According to the estimate, if we assume the number of 131, then where does all this cash, all our black money go? Now see, there can be many investments. Now you cannot invest in stocks in cash, the money will go from your account only.

The risk increases a lot in gold. There is a security risk. So a lot of this black money goes into real estate. Now it is obvious that if a lot of money gets collected in one place then its demand will increase and we have already seen that the supply is limited.

So here also our prices increase. Now there is another big reason which you might not have thought of, that is high vacancy rate and low rental rate. What does this mean? Let us first understand what is vacancy rate. See, there are many houses in India which are lying vacant.

They are not given on rent. And why are they not given on rent? For this too, another study has been done by CSP. A clear reason has been found in it. Its main reason. What came out is that most of the house owners in India are afraid to give their house on rent because the tenant will come and occupy it and the problem in India is that our lodges are very pro-tenant and if someone occupies it then it becomes very difficult to evict the tenant.

Whatever contract or rent agreement we sign, it becomes very difficult to implement it because we all know that there are very few courts and judges in India, so because of this, many people in India, if we talk about today, 1 crore houses are lying vacant and on the other hand we have a shortage of 1 crore affordable housing, so if this supply comes in the market, then many of our problems can also be solved by it.

Why Buying a Home is So Expensive in India

Aspect	Details
Affordability Metric 1: Price-to-Income Ratio (PTI)	Affordable if PTI < 5
In India’s Average PTI (2023)	11 (Highly unaffordable)
Mumbai PTI (2023)	40 (Extremely unaffordable)
PTI Comparison with Other Countries	USA: 3.6, Germany: 9, China: 29, Sri Lanka: 26
Affordability Metric 2: EMI-to-Income Ratio	Affordable if EMI/Income < 50%
India’s EMI/Income (2024)	61% (Up from 46% in 2020)
Least Affordable Cities	Mumbai (116), Delhi (82), Gurgaon (62), Hyderabad (61)
Most Affordable Cities	Ahmedabad (41), Chennai (41), Kolkata (47)

Why Prices Keep Rising Beyond Inflation

Indicator	Annual Rate
Real Estate Price Growth (30-Year Avg)	9.3%
Real Estate Price Growth (30-Year Avg)	6%

Three Main Reasons for High Housing Prices

Reason	Explanation
Unpredictable & Limited Land Supply	Only 28 cities have a master plan; no strict timelines or financing. Developers release land in small portions to control prices.
Shadow Economy & Black Money	Around 13.6% of GDP operates in cash. Large amounts of unaccounted wealth are invested in real estate, increasing demand.
High Vacancy + Low Rental Supply	1 crore homes lie vacant. Fear of tenants occupying homes + weak rental laws discourage renting, creating artificial housing shortage.