For those born between the 1950s and the mid-1980s, owning a home was typically seen as a status symbol, a financial security and a necessity. Not only was owning a home considered to be a major milestone in life but renting a home is considered as disparaging. On the contrary, people born in the late 80s and 90s do not consider buying a home as a sense of accomplishment. They would rather travel to 50 countries before they turn 30, have three jobs or own their business rather than buy a home. This has led to a paradigm shift in the Indian real estate industry.
Millennials are content sharing their apartments with more people if it helps them save on real estate costs, or fund their next trip, next car, next outing or the next iPhone. It is important to note and understand the underlying drivers of millennials’ behavior and why they are no longer interested in buying real estate as compared to the previous generations.
Why do millennials not want to buy?
Millennials don’t want a huge EMI burden early on in their careers. They do not want something that will take away 20-30 per cent of their salaries. They do not want to be tied down to a mortgage, as it adds risks to their lives. In the ever-changing corporate landscape, millennials also don’t want to be tied down to a house for the rest of their lives. They want to have the flexibility of moving jobs or countries.
Renting is cheaper than buying
According to JLL research, the price of a two bedroom-hall-kitchen apartment in Andheri, Mumbai, is around Rs 1.9 crore; in Hinjewadi, Pune, it is around Rs 75 lakh, while in Kondapur, Hyderabad it is about Rs 80 lakh. Buying such a house via loans translates to a monthly equated monthly installment (EMI) of around Rs 1.3 lakh for Mumbai, Rs 50,000 for Pune and Rs 56,000 for Hyderabad.
Rent-wise, Mumbai residents can expect to pay a rent of around Rs 40,000 per month, Rs 23,000 for Pune and 30,000 for Hyderabad for the same localities.
Clearly there is a 2.5-4.5 times difference between rent and EMIs. If renting is 30 percent of what owning would be, why would you want to buy?
What’s more, co-living spaces are more like college dorms for adults. Single millennials prefer a co-living space close to work. They get to meet new people and participate in social activities.
Complexity of home buying procedures
The utter fragmentation, miscommunication and complete lack of technology in the industry are big deterrents in the home-buying process. It would help if home loans are available with less paperwork and procedures. In the same breadth, there is enough and more empirical evidence as well as actual data that shows that these young millennials are turning to fintech companies to take loans for very trivial purposes because most fintech companies give loans at the tap of a button on your mobile and with little verification. Too much of ease, therefore, is also a danger.
How different is it in the US?
While it is debatable whether debt is a good or bad, in the US, people are more comfortable with debt compared to those in India. The culture is changing, however, with Indians becoming a little more comfortable with debt.
Another factor that plays well with the US is low interest rates on housing loans. In India, housing loan interest rates range around 8-11 per cent, in the US they range around 2.5-5 per cent. Saving around 5 percentage points in interest is huge. Imagine, if you bought a house for Rs 1 crore, it would mean a saving of close to Rs 5 lakh in interest per year.
Also, buying a home is easy and transparent. Almost everything is electronic, and the market is very heavily regulated. Paperwork is easier compared to that in India and the overall process takes about 30-45 days.
When will make Indians buy more homes?
- Rental limitations
In the US, most housing, apartment and row house community associations restrict renting. That automatically forces people to buy homes in sought-after neighborhoods.
- Rent and EMI parity
As the rents increase and EMIs decrease, it will start making more sense to own than to buy. To make owning a house more attractive in India, the rent to EMI ratio will need to be similar. This can be coupled with more tax incentives for first-time home ownership, way more than it does right now. This can be done by giving income tax incentives, property tax waivers amongst other things that reduce the burden for first-time homebuyers
- Ease of buying and selling homes
If the entire process is transparent and takes about 30 days or so to complete, homebuyers would be more willing to sign up for doing all that. If more companies can offer easy-to-understand mortgage packages that can be compared across vendors, it will incentivize the millennial buyer
- Smarter buying tools
A majority of India’s working millennial population makes purchasing decisions on their mobile phones. Availability of online mortgage estimators, online loan approvals, tools to check on property rates, and shop mortgage lenders will make it easy for the Indian young millennial to consider buying a home. The flipside: too much of technology in making loans available can also lead young and millennials into a debt trap.
In conclusion, India has a long way to go before the real estate adoption rate increases to match that of countries such as the US and UK. Overall, in our opinion, buying at least one house is generally a good idea to give yourself some financial security in your old age. If you can afford to buy a house, consult your financial advisor for a suitable course of action.
(Source: money control)
