Property Prices in India: A Tale of Artificial Inflation?
Financial expert Feroze Azeez highlights the gap between residential rental yields and home loan interest rates, leading to artificially inflated property prices in India.
Wed, 31 Jul 2024
In a recent tweet by financial expert Feroze Azeez, he shed light on an intriguing phenomenon that has been observed in various countries, including India. According to him, the gap between residential rental yields and home loan interest rates is significantly large in nations where there is a significant disparity between these two rates.
This disparity leads to property prices being artificially inflated due to tax compulsions. In India, for instance, the rental yield of properties typically ranges from 2% to 3%, whereas the home loan interest rate hovers around 8-9%. This stark contrast creates an arbitrage opportunity that drives up property prices.
In countries where there is a large gap between residential rental yields & home loan interest rates, property prices are artificially inflated cos of tax compulsions of owning them.
— Feroze Azeez 🇮🇳 (@feroze_azeez) July 31, 2024
In India, rental yields are ~2-3% & home loan interest is ~8-9%, unlike in countries such as the…
If there were no cash in the economy and Section 54 did not exist, these two rates would likely converge over a period of about a decade, eliminating this artificial inflation. The implications of this phenomenon are far-reaching, especially for first-time homebuyers who struggle to navigate the complex landscape of Indian real estate.
As property prices continue to rise, it becomes increasingly challenging for prospective homeowners to make their dream a reality. Furthermore, the artificially inflated property market can have far-reaching consequences for the economy as a whole.
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