Real estate has been overpriced and will stay overpriced for a very long time it seems. The reasons are many, but the main one is the lack of investment options for people sitting with cash aka black money. You see, real estate is the only option people have when they have crores sitting in cash. Cash, sitting idle, depreciates and runs a risk of being stolen (and getting one killed in the process), or being confiscated by authorities, and is as such more of a liability when not invested.

One can’t buy equity with it, can buy only so much gold, etc. But if one buys real estate one gets some rental, appreciation on investment, and also gets to make it into white when reselling after a long period and practically not paying any tax if one is smart with reinvesting, etc. People with huge chunks of cash can simply put about 20-50% white along with the cash portion and solve this problem easily in just one property purchase. Add to that the love of “own house” and the status it adds and a growing middle class with higher incomes, and we get the picture of real estate prices expanding.

But one major factor is also inflation. The reported inflation is about 6% but actual inflation would be about 8-10%. The cost of construction has been going up by about 15-20% last couple of years so even if land does not appreciate in value because of the above factors, inflation alone would spike the prices up by at least the amount of inflation.

If that seems impossible to you right now (it always seems impossible before prices go higher), remember that we still haven’t reached the prices of the 2012 peak. And despite inflation from 2013-2020, prices stayed lower which practically means prices have corrected by about 50% in 8 years!!! It was not very dramatic as it didn’t fall much but just fell a bit and stayed at that level for 8 years. That is very much a crash but not a sudden dramatic one.

So looking forward I would think that that we are going to see at least a 7-8% steady increase per year. But it may very well be 15-20% per year for the next few years. A fall in real estate prices is as unlikely as me becoming a dollar billionaire in the next 5 years. But you never know!

Best

Ashutosh Bhogra