From renting to owning: Millennial revolution in homeownership

The Covid-19 pandemic unleashed a wave of unforeseen challenges and disruptions, shaking the foundations of our world. Amidst this global turmoil, a remarkable phenomenon emerged: millennials, a generation long associated with the rental lifestyle, began to embrace homeownership on a global scale. The question that arises is, why did this transformation occur?

As the pandemic swept across nations, people sought safety and stability, desperately yearning for a place to call their own. Millennials, known for their resilience and adaptability, recognised that the time had come to invest in their future and build a solid foundation for themselves and their families. The impact of the pandemic acted as a catalyst, propelling them towards the path of homeownership.

In the wake of the pandemic, remote work became the new norm. Traditional office spaces were replaced by home offices, and the boundaries between personal and professional life blurred. Millennials, who had long been accustomed to the freedom and flexibility of the digital era, found themselves liberated from the confines of a physical workplace. With the newfound ability to work from anywhere, the concept of "home" underwent a profound transformation.

In countries like China, approximately 70% of millennials started opting for homeownership. Similarly, in India, the trend of millennials purchasing homes gained momentum in recent years.

According to a white paper by 360 Realtors, a leading real estate consultancy, there are 400 million millennials in India, comprising 46% of the country's wage-earning population. These millennials have a spending capacity of around $ 3.6 trillion, a figure that has quadrupled over the span of a decade. Millennials are increasingly choosing homeownership as a long-term investment and are prioritising it over renting. A survey by CBRE titled “Live, Work, Shop” reveals that over 70% of Indian millennials aspire to become homeowners, with 44% of prospective buyers aiming to shift into their new homes by 2025.

This growing quest for homeownership among millennials is taking place against the backdrop of a robust residential real estate market, defying global headwinds. During the first quarter of 2023, Indian homebuyers made the highest number of residential purchases in 15 years. Pre-sales reached a record high of 241 million square feet, marking a 16% year-on-year increase in the fourth quarter of the fiscal year 2023. Both end-users and investors have played a pivotal role in driving this growth.

Several factors are contributing to the increasing demand for homeownership among millennials, aligning with favourable dynamics in the housing market. Millennials have begun to have a mindset of early retirement by the age of 50, motivating them to build income-generating assets at a young age. Real estate presents itself as a highly recurring income asset, given the double-digit price appreciation observed in the residential sector in recent years. Average monthly rentals have also surged significantly, and experts predict further price increases in the near future. An Anarock report highlights that average monthly rentals for 2BHK flats of 1,000 sq ft area have risen by up to 23% across seven major cities between 2019 and 2022, offering substantial returns on investment.

Furthermore, infrastructure development and improved connectivity to tier 2-3 cities, which have gained prominence as second home destinations, are attracting millennials to invest in vacation homes. The decision to buy a home for self-use instead of paying rising rents also makes financial sense. Whether for end-use or investment purposes, millennials find numerous favorable factors driving them to own a home. Post-pandemic, developers have been launching spacious lifestyle homes with modern amenities, offering millennials a wide variety of options. These include plotted developments, villas, independent floors, gated apartment complexes, low-rise and high-rise buildings, and homes across various price segments, ranging from affordable to luxury. Green homes that promote healthy and sustainable lifestyles are also appealing to millennials. Technology-enabled smart homes introduced by real estate companies cater to the tech-savvy preferences of millennials.

The market presents a good inventory of under-construction homes, particularly newly launched properties, with a 25% increase in new supply. In Q1 2023, out of approximately 114,000 homes sold across the top seven cities, 36% were launched during the same quarter. Developers' focus on home completions has resulted in sufficient inventory of ready-to-move homes in some markets, offering the dual advantage of zero Goods and Services Tax (GST) and no development risks.

A latest PropIndex Report of Magicbricks reveals that the macro situation is quite stable, demand is much more and prices are rising. Developers are seeing good sales traction and even individual homeowners are seeing good demand in the resale market. All this bodes well for the market sentiment and the confidence of home buyers in general and millennials in particular.

The COVID-19 pandemic served as a wake-up call for millennials, prompting them to reassess their priorities and embrace the security and stability that homeownership offers. Driven by newfound flexibility, a desire for financial security, and a yearning for a place to call their own, this generation has emerged as a driving force in the real estate market. Their journey towards homeownership is not just a financial decision; it's a profound expression of their values, aspirations, and quest for a brighter future.

This article is authored by Rizwan Sajan, founder and chairman, Danube Group.