Latent demand in Indian Real Estate: Buying a house at 25

It is always suggested to start investing early. Several reasons would support this suggestion, especially the compounding effect of money, inflation, low expenditures in the early part of life and many more. But when it comes to real estate, early investing more often than not leads to capital value appreciation. Moreover, when you have just passed out of your college and looking for a place to rent, did you ever stop to think what if you could just buy your flat rather than shelling out hefty amounts in the form of rent. Why aren’t these real estate companies targeting these early SEC A earners is beyond my understanding.

Let’s look at the economics of demand from these new graduates and analyze whether Real estate is affordable for them at such an early age.

First, let’s do some back of envelope calculation for guesstimating the number of graduates every year who would earn at least INR 50,000 or higher. Let’s make certain assumptions on the prospective number of graduates and post-graduates who would end up with a take-home salary of 8 lakhs or more.

• Graduates from top 10 engineering institutes with an average of 10000 students (all programs) i.e. 10,000
• Graduates from top 20 MBA institutes with an average of 600 students i.e. 18000
• Graduates from top 20 Medical institutes with an average of 300 students i.e. 6000
• Other graduates from professional institutes i.e. around 20000

This makes a total of 52,000 students graduating every year and making INR 60,000+ as their starting salary. Assuming that three-fourth of them end up in Mumbai, NCR and Bangalore which should be a fair assumption. Moreover, these three towns also account for 70% of total residential absorption in India. So that makes around 40,000 of students moving to these three towns.

The average price of apartments in Gurgaon is Rs. 6000/sqft. Similarly, APR in Noida (3500), Navi Mumbai (8000), Bangalore (4500). So a 1000 sqft 2 BHK apartment would cost somewhere around 60 Lakhs in GGN, 35 Lakhs in Noida, 80 Lakhs in Navi Mumbai, 45 Lakhs in Bangalore.

So the EMI on these ticket sizes approximates to 60000 for GGN, 35000 for Noida, 80000 for Navi Mumbai, 45000 for Bangalore. It’s true that with a salary of 60,000 it might be impossible to shell out such huge EMIs every month. Though it seems plausible to do so for cities like Noida & Bangalore. As far as Navi Mumbai & Gurgaon is concerned, what if 2 friends come together and buy a flat to stay together. Let’s look at the benefits:

• You save on the rents which you hate to shell out every month 
• You save yourself from the tension of dealing with a broker which is a hassle
• You save on paying unnecessary brokerages and token money which seldom runs in lakhs
• You save yourself from the fear of getting back your token money from the owner
• You save yourself from constantly being asked to renew your contract or change your house every 11 months

These were the cons from which you get to save yourself. Now let’s look at the pros:

• If you had passed from your college in 2009 and taken a house in Gurgaon, you would be shelling not more than 35,000 rupees as your EMI for a 2 BHK flat. Moreover, the same investment would have probably doubled by now. What else does one look for!

I know there are few challenges to the same such as:

• New Graduates are often looking for a change in their jobs leading to instability in their life which makes them unsure of buying a house. Buying a house would restrict them in a way to make choices in their lives
• There is a need for down payment which amounts to as high as 15 lakhs on a house worth INR 1 crore which these new graduates are unable to pay.

All I am saying is that this group of new graduates with a better scope of earning good salary is a latent demand which can be catered by the Real Estate developers. The need is to come up with innovative solutions to take care of few challenges that exist as mentioned above. I am sure there might be other challenges too which can be overcome if all stakeholders come together to find a solution for the same.