As millennials opt to buy houses amid soaring rents, market set to tighten

During COVID, many young people purchased houses that were ready to move in. The first wave got the houses at reasonable rates.

There was a generation of millennials who considered home ownership a liability. They wanted to live light and preferred to lease the best homes and live in good localities rather than those they could afford to buy into. When they found a better job in a different city, they simply needed to pack their essentials and take off. Today they are buying homes and settling in after the hard facts hit them post-COVID.

Take the example of Viju and Sonam Kashyap who had lived in Bellandur in Bengaluru since COVID struck. They had negotiated a good rent for a villa in a gated community and lived there till early 2023. Things started becoming difficult when property prices started inching upward. As expected, the landlord asked them to move as he was selling the property. Across the country, in Noida, Harini and Akash Mitra found the landlady of three years boosting the rent to almost twice what they were paying. The market had picked up post the return of the workforce and the lease rentals were due to rise exponentially. A third corporate couple in Chennai found a similar problem. The landlord wanted to sell the house that they had stayed happily in since the pandemic. There were fewer houses available in the complex and lease rental values were very high too. Finally, they have compromised and taken a smaller house on a lower floor, to match their paying capacities.

So, what has changed in the property markets across the country where professionals were keeping rental stock up? When Covid struck and workforces left cities and went to their hometowns, desperate landlords sweetened the deals for any takers who were left behind. They offered long-term leases or even an escalation-free clause for a couple of years.

Demand, Prices Climb

During COVID, many young people purchased houses that were ready to move in. The first wave got the houses at reasonable rates. As the demand picked up, prices rose too. Many still held on to the dream of living in rental homes. However, with a severe depletion in rental stock, as returning workforces picked up any available property, there is a severe shortage of houses for lease. A few years ago, when all developers focussed on completing ongoing projects rather than launching new stock, many market analysts had predicted that there would come a time when demand would outstrip supply. That has now become a reality.

As rental housing stock reduces, there are many who have decided to shop for houses to live in. But unlike during Covid, peripheral houses have not come back into demand. Rising traffic jams have ensured that proximity to corporate hubs is coming back into vogue. The only difference is that micro markets have now become self-sufficient. Schools, hospitals, retail and entertainment centres are now more evenly distributed across the city. For those who still have to travel to work only a few days in a week, easy connectivity has become a criterion when finalising their house.

Anarock estimates that in the Delhi NCR (National Capital Region) alone about 21 percent of the unsold inventory has been sold in the past year. A fourth of this was in the mid-segment of Rs 40-80 lakh, another 24 percent in the affordable category and about 23 percent in the Rs 80 lakh to Rs 1.5 crore category. Clearly, the lower and upper middle class is driving most of the sales. But the affordable housing stock has dropped by about 19 percent, portending another wave of shortfall in the category. Despite many studies that are freely available on the demand and supply on a quarterly basis, the developer fraternity still continues to hedge its bets in the premium categories where too there is some movement. The ultra-luxury stock in the NCR has grown 18 percent in the past year, showing fewer sales and more completion of stock. Anarock research found that the Mumbai Metropolitan Region (MMR) and Pune together account for about 52 percent of new launches. This is directly linked to the market-friendly housing policies the state of Maharashtra adopted during the pandemic and beyond.

As the existing stock falls and rental housing pinches, tenants are forced to either compromise on size or shell out a much higher rent for the same houses. The market is moving towards inequality in supply and demand. The next few quarters are crucial in determining where the market stabilises.

The silver lining in all this is that many corporate houses are opting to open offices in Tier 1 and 2 cities where the housing shortfall is not so marked. This is rapidly attracting young workforces who realised the value of being close to home during the pandemic. These are expected to become significant drivers of the economy in the future.

E Jayashree Kurup is a writer-researcher in real estate and Director Real Estate & Cities, Wordmeister Editorial Services. Views are personal, and do not represent the stand of this publication.