Housing Crisis Insights by Nikhil Kamath
Zerodha’s co-founder, Nikhil Kamath, recently delved into the ongoing housing crisis, shedding light on the impact of rising EMIs, stagnant salaries, and soaring house prices. Through a series of posts on social media platform X (formerly Twitter), Kamath offered valuable insights into the current state of the real estate market.
In a post dated November 2, Nikhil Kamath pointed out that interest rates are on the rise, resulting in significantly higher EMIs, while salaries have remained relatively stagnant.
Check Out: India Dominates Sri Lanka, Qualifies for Cricket World Cup 2023 SemifinalsSo, rates are up, EMIs have doubled, salaries haven't, and house prices have gone up a lot.
— Nikhil Kamath (@nikhilkamathcio) November 2, 2023
What’s next? If rates stay up, the slowdown in sales could be a logical precursor to price correction. The cost of capital is correlated globally, Indian rates can't go down if the US… pic.twitter.com/DbtBSiB9JP
Meanwhile, house prices have seen substantial increases, creating a challenging scenario for potential homebuyers. Kamath pondered the inevitable question of “What’s next?” and suggested that if interest rates remain high, a slowdown in property sales could be a precursor to a necessary price correction. He emphasized the global correlation of the cost of capital, asserting that Indian interest rates can’t decrease if US rates remain elevated.
Global and Indian Housing Market Perspectives
Kamath’s commentary extended beyond the Indian real estate market, touching on the global housing crisis. His observations are based on the context of the US. Getting a homeownership is unattainable for lots of young individuals because of the soaring high prices. It is further exacerbated by increasing rates for mortgages. Some reports from the Wall Street Journal state that it is 52% more expensive to buy a home than to rent one in the US.
In an earlier post from April, Kamath referred to the spike in house rents in India as a short-term phenomenon. He stressed that for a balance between buying and renting trends to be achieved, housing loan rates needed to align with rental rates.
Factors Affecting the Indian Housing Market
Nikhil Kamath shared his perspective on the Indian housing market, highlighting the impact of rising interest rates and an aging population with fertility rates below replenishment levels in most states. This demographic shift leads to an older population that requires less living space.
Check Out: Differences between the New Royal Enfield Himalayan 452 vs Old Himalayan 411Furthermore, the residential rental yield is approximately 3 percent, which falls far short of beating inflation. Kamath also discussed the potential impact of resolving black money issues on the Indian real estate market and questioned why real estate prices in cities like Mumbai remained high, especially when renting at 3 percent seemed more financially favorable.
Expert Insights and Market Data
Market data and expert insights further reinforced the challenges and dynamics of the real estate sector. Anarock’s report indicated a surge in housing sales across seven Indian cities in the January to September period, with transactions surpassing the entire pre-COVID year of 2019. Additionally, Magicbricks reported a decline in rental housing demand during Q3 2022, despite year-over-year growth.
Thus, Nikhil Kamath’s insights shed light on the complexities of the housing crisis, both in India and on a global scale, emphasizing the interplay between interest rates, demographic shifts, and the financial implications of buying versus renting. These observations underscore the challenges faced by those seeking to enter the real estate market in these turbulent times.
