Explained: Home prices have shot up 50% in Delhi, Mumbai in just 5 years

India's two largest real estate markets, Delhi-NCR (National Capital Region) and MMR (Mumbai Metropolitan Region), have witnessed a remarkable boom in the past five years, defying expectations.Average residential prices skyrocketed by a staggering 49% in both regions between the first half of 2019 and the first half of 2024, as per a report by Anarock, a real estate consultancy firm. 

NCR saw prices climb from Rs 4,565 per sq ft to Rs 6,800 per sq ft in this five-year period, while MMR prices jumped from Rs 10,610 per sq ft to Rs 15,650 per sq ft. This price surge is attributed to a combination of rising construction costs and strong buyer demand.

Prices in both regions had maintained status quo from late 2016 to 2019. Just when these two markets were beginning to see green revival shoots, the pandemic struck.

The Pandemic's Unexpected Impact

Prior to 2020, both markets experienced stagnant prices after a period of oversupply.

However, the COVID-19 pandemic unexpectedly fueled demand, leading to a surge in sales.

Developers initially used attractive offers and incentives to boost sales, but as demand continued to rise, prices were gradually increased.

"The COVID-19 pandemic was a boon for these two residential markets, causing demand to soar to new heights. Initially, developers induced sales with offers and freebies; but with demand heading north, they gradually increased average prices. Strong sales helped unsold inventory to decline in the period, especially in NCR," noted Anarock in a note. 

Anarock Research

Inventory Decline: A Silver Lining

• The robust sales activity significantly reduced unsold inventory, particularly in NCR.
• NCR saw a massive 52% drop in unsold units, falling from approximately 1.82 lakh units in H1 2019 to 86,900 units by H1 2024.
• This translates to a significant improvement in inventory overhang, dropping from 44 months in H1 2019 to a healthier 16 months in H1 2024.
• Conscious curtailment of fresh supply was a major factor that helped the region to clear its stock. Only about 1.72 lakh units were launched in NCR between H1 2019 and H1 2024.

"Paradoxically, the pandemic was an undisguised blessing for the National Capital Region," said Anuj Puri, Chairman of ANAROCK Group. "Once infamous for high unsold inventory fed by speculative demand and supply, the region has seen a sharp decline of over 52% in its unsold stock in the last five years. Interestingly, the inventory overhang has reduced to 16 months in NCR in H1 2024 as against 44 months back in H1 2019."

MMR: A Different Story

• While MMR experienced a 13% decline in unsold inventory, new launches played a bigger role than in NCR.
• Over 5.26 lakh units were launched in MMR during the same period, tripling the number of new launches in NCR.
• This higher supply helped meet the resurgent demand in MMR, although the inventory overhang still decreased from 34 months in H1 2019 to 14 months in H1 2024.

"Meanwhile, MMR’s current available stock is at approx. 1.95 lakh units. In the last five years, the region has seen a 13% decline in its unsold stock - largely on account of substantial new launches to meet resurgent demand. MMR has seen over 5.26 lakh units launched between H1 2019 and H1 2024 - thrice the new supply in NCR in this period. The inventory overhang in the region came down 14 months as of H1 2024-end from 34 months back in H1 2019-end," said the report. 

In the last 12 months alone, Mumbai witnessed a 11.5% rise in luxury real estate prices, reaching the third spot globally, after Manila and Tokyo. Delhi’s prime residential prices soared by 10.5% in the last year, finding fifth spot on property consultant Knight Frank’s prime global cities index, which is ranked as per annual percentage change in realty prices.

“The strong demand trend for residential properties has been a global phenomenon, led by gateway markets of Asia-Pacific, Europe, Middle East and Africa. Like its peers in these regions, the improved rankings of Mumbai and Delhi on the prime global cities index was underscored by resilience in sales growth volume. We expect momentum of sales to remain stable over the next few quarters as economic corridors are likely to remain unchanged," said Knight Frank in a recent report. 

The strong performance of these two key markets is a positive sign for India's real estate sector. However, it's important to monitor future trends in demand, pricing, and new supply to assess the market's long-term sustainability.