Reality Of Real Estate In 2025: Banker Discusses About India’s Soaring Property Prices

Owning a home has long been seen as a key milestone and a symbol of financial stability in India. However, in today's economic climate, this dream is becoming increasingly elusive for the average middle-class Indian. Rising property prices, stagnant incomes, and systemic inefficiencies have widened the gap between aspiration and affordability.

In a recent LinkedIn post, investment banker Sarthak Ahuja delved into the complex dynamics behind India's unaffordable real estate market. He shared not only the key reasons driving the surge in property prices but also offered practical advice for aspiring homeowners navigating this tough environment.

The Price-To-Income Reality

According to Ahuja, the Price to Income (P2I) Ratio, a key metric used to assess housing affordability, has hit worrying levels in urban India. "If you look at the Price to Income (P2I) ratio for houses in India, or the number of years' income you have to pay to be able to afford a house today.... For urban Indian cities, the average P2I has reached - 11," he wrote. "which means you need 11 years of full income to be able to afford a house. And if you assume 50% of your income goes into expenses, that's over 20 years of savings in buying a house!"

He also noted that this ratio now mirrors that of New York City, one of the world's most expensive real estate markets, a stark comparison that highlights just how unaffordable Indian metros have become.

Why Are Property Prices Skyrocketing In India?

Ahuja attributed the surge in property prices to a combination of policy, market manipulation, and the influence of unaccounted wealth. Here are the three core reasons he outlined -

1. Low Floor Space Index (FSI)

India's Floor Space Index (FSI), also known as Floor Area Ratio (FAR), is significantly lower than in developed countries. In most Indian metros, the FSI ranges from 1.3 to 3.5, which limits the vertical growth of buildings and leads to inefficient land use.
"Which means you need more land to house the large population," Ahuja explained. For context, the average FSI is 15 in the US and 25 in Singapore, allowing for denser, taller housing developments.

2. Price Manipulation by Private Developers

Private real estate developers often artificially restrict supply to drive up prices. "They'll release only 5 units for sale in a 100 unit development- and set the price for them through artificial scarcity," Ahuja noted. "And only after these 5 are sold, they will release another 5 at a 10% higher price to see if the market takes it."
This deliberate supply manipulation benefits developers but leaves buyers struggling to afford homes that are priced well beyond market value.

3. Real Estate as a Parking Lot for Black Money

Ahuja also pointed to the deep-rooted issue of black money in Indian real estate. He cited a shocking statistic - less than 10 families own 20 per cent of Mumbai's land, and around 500 families control half the city. These ultra-wealthy individuals often channel unaccounted funds into property, which distorts the market and further limits access for genuine buyers.
He explained that as their wealth is locked in company equity, real estate becomes the preferred vehicle to park liquid assets.

Advice for Aspiring Homeowners

Despite the challenges, Ahuja doesn't discourage homeownership entirely but urges potential buyers to approach it with caution and clarity.

"Ideally, buy a house when you can afford to pay for no less than 50% of the price of the house upfront... and the balance 50% is financed through loan...," he advises. Furthermore, he added that EMIs should not exceed 35% of your monthly net income to maintain financial stability.

For those who find urban housing out of reach, he recommends -

Renting over buying to maintain liquidity and flexibility.
Focusing on income growth before locking into long-term financial commitments.
Exploring Tier-2 cities, where property is more affordable, and infrastructure is improving, offering better value and long-term appreciation potential.