Buying a home in modern India has evolved from being a challenging aspiration to an almost irrational endeavor. According to investment banker Sarthak Ahuja, the dream of owning property in urban India is becoming increasingly unattainable for the average citizen. In a recent LinkedIn post, he dissected the reasons behind the skyrocketing property prices and offered pragmatic advice to those looking to buy a home in today's market.
The Harsh Reality of Price-to-Income Ratios
Ahuja highlights a critical metric: the Price-to-Income (P2I) Ratio. This figure represents the number of years' worth of income needed to purchase a home outright. In India’s major cities, this ratio now averages around 11. Simply put, a person would need to devote 11 years of their entire income just to afford a home. Considering that half of one’s income typically goes toward daily expenses, the actual time required to save for a home doubles—making it more than 20 years before ownership becomes a reality.
What’s more concerning is that this ratio rivals that of global real estate hotspots like New York City, widely considered one of the most expensive housing markets in the world. For a developing economy like India to match such figures raises alarm bells for accessibility and equity in housing.
Why Homes Are Slipping Out of Reach
1. Restrictive Construction Regulations
One of the fundamental issues, according to Ahuja, lies in India’s outdated urban planning laws—particularly the low Floor Space Index (FSI). In most metropolitan areas, the FSI ranges from 1.3 to 3.5, effectively capping how tall or dense buildings can be. This results in a greater demand for land to accommodate a growing population. In stark contrast, cities in the United States have FSIs around 15, and in highly efficient urban environments like Singapore, the number jumps to 25. India's restrictive FSI severely limits supply and drives up land costs.
2. Manipulated Market Dynamics
Another key factor contributing to inflated housing prices is the behavior of private real estate developers. Ahuja claims that developers often release only a small fraction of a project’s inventory—say, five units out of a 100-unit development. This tactic creates artificial scarcity, pushing up the prices of subsequent units by 10% or more. The illusion of high demand helps justify escalating rates while making properties increasingly unaffordable.
3. Real Estate as a Safe Haven for Illicit Wealth
Lastly, Ahuja touches on the shadowy role of unaccounted wealth—or "black money"—in real estate. Properties in India often serve as repositories for undeclared cash, distorting market demand. Ahuja notes that in Mumbai, less than ten families reportedly control 20% of the city’s land, and around 500 families hold half of the city’s real estate. This concentration of ownership severely skews availability and pricing.
Advice for Aspiring Homeowners
For those still hoping to own a home, Ahuja offers a sobering guideline: purchase only when you can afford at least 50% of the property’s value upfront, and ensure your monthly EMIs (equated monthly installments) do not exceed 35% of your net income. Until then, he recommends renting and focusing on growing one’s income. He also suggests exploring Tier-2 cities, where affordability and growth potential are still within reach.
Who Is Sarthak Ahuja?
Sarthak Ahuja is a well-regarded figure in investment banking and financial advisory. A Chartered Accountant by profession, he brings over ten years of experience in areas such as deal structuring, business valuation, and CFO services. He serves as a Partner at Sandeep Ahuja & Co. and holds a leadership role at Niamh Ventures Pvt. Ltd.
Ahuja earned his undergraduate degree in Finance and Investment Analysis from Shaheed Sukhdev College of Business Studies and completed his MBA at the prestigious Indian School of Business (ISB).
The Harsh Reality of Price-to-Income Ratios
Ahuja highlights a critical metric: the Price-to-Income (P2I) Ratio. This figure represents the number of years' worth of income needed to purchase a home outright. In India’s major cities, this ratio now averages around 11. Simply put, a person would need to devote 11 years of their entire income just to afford a home. Considering that half of one’s income typically goes toward daily expenses, the actual time required to save for a home doubles—making it more than 20 years before ownership becomes a reality.
What’s more concerning is that this ratio rivals that of global real estate hotspots like New York City, widely considered one of the most expensive housing markets in the world. For a developing economy like India to match such figures raises alarm bells for accessibility and equity in housing.
Why Homes Are Slipping Out of Reach
1. Restrictive Construction Regulations
One of the fundamental issues, according to Ahuja, lies in India’s outdated urban planning laws—particularly the low Floor Space Index (FSI). In most metropolitan areas, the FSI ranges from 1.3 to 3.5, effectively capping how tall or dense buildings can be. This results in a greater demand for land to accommodate a growing population. In stark contrast, cities in the United States have FSIs around 15, and in highly efficient urban environments like Singapore, the number jumps to 25. India's restrictive FSI severely limits supply and drives up land costs.
2. Manipulated Market Dynamics
Another key factor contributing to inflated housing prices is the behavior of private real estate developers. Ahuja claims that developers often release only a small fraction of a project’s inventory—say, five units out of a 100-unit development. This tactic creates artificial scarcity, pushing up the prices of subsequent units by 10% or more. The illusion of high demand helps justify escalating rates while making properties increasingly unaffordable.
3. Real Estate as a Safe Haven for Illicit Wealth
Lastly, Ahuja touches on the shadowy role of unaccounted wealth—or "black money"—in real estate. Properties in India often serve as repositories for undeclared cash, distorting market demand. Ahuja notes that in Mumbai, less than ten families reportedly control 20% of the city’s land, and around 500 families hold half of the city’s real estate. This concentration of ownership severely skews availability and pricing.
Advice for Aspiring Homeowners
For those still hoping to own a home, Ahuja offers a sobering guideline: purchase only when you can afford at least 50% of the property’s value upfront, and ensure your monthly EMIs (equated monthly installments) do not exceed 35% of your net income. Until then, he recommends renting and focusing on growing one’s income. He also suggests exploring Tier-2 cities, where affordability and growth potential are still within reach.
Who Is Sarthak Ahuja?
Sarthak Ahuja is a well-regarded figure in investment banking and financial advisory. A Chartered Accountant by profession, he brings over ten years of experience in areas such as deal structuring, business valuation, and CFO services. He serves as a Partner at Sandeep Ahuja & Co. and holds a leadership role at Niamh Ventures Pvt. Ltd.
Ahuja earned his undergraduate degree in Finance and Investment Analysis from Shaheed Sukhdev College of Business Studies and completed his MBA at the prestigious Indian School of Business (ISB).
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