Investing in land or apartments is one of the biggest investments for anyone in the world. So, it is the same for anyone living in India as well.

One way to see if an asset is expensive to own is by checking it with the national income of the country. Real Estate prices have gone up for several years in India, but when we talk about the overall income of the common man, it has got to a point of stagnation these days.

But why is this happening?
There can be several reasons, and some of the common ones are;

• The land prices on which constructions are happening have steeped up, because of which the overall cost of the apartments has also increased.
• Easily available credit has also helped in inflation, as people have started investing more money as there is supply. So, one can say that demand is more than supply at this point.
• There are delays in the construction of good houses, which has led to increased bidding from buyers, hence it has resulted in higher prices.

But out of these, "Easily Available Loan/Credit" is more responsible for a higher price-to-income ratio. 

As in several other cultures, in India also, we have a strong affinity for real estate as it gives comfort to us, knowing that we own land parcels or houses and we classify it as an investment (which it isn't).

Why "Easy Credit Availability" has changed the real estate market?
In past, few people might get credit or loans from banks, and hence people who were interested in buying apartments or real estate properties were also. 

But today, because anyone can get a loan easily, therefore, there are more buyers per unit of real estate property, because of which inflation kicks in and hence rates of these apartments go up.

The bad thing about this is that common people are the ones who get exploited. 

This is because, someone who already has money to buy real estate property, will usually not go for higher financing, and hence in the market, we see buyers are more but the people who are buying those houses are from affluent families.

It's not about the unavailability of apartments, but the unavailability of quality apartments that will encourage the common people of India to think about buying a house.

Also, sellers of properties only think of higher rates because they know banks will pitch in with the money. The banks underwrite these housing loans and they get predictability of Revenue in return for 15 years or more. The buyer starts to pay EMIs against the house loan.

The recurring expense of EMIs for the person as a percentage of his monthly income is so high that the person then subscribes to more such credit products like credit cards, zero down payment EMIs, etc, this snowballs into a vicious circle of never-ending EMIs and one loan after another.

People have ambitions, which is not wrong, but one should self-access - at what cost are they completing these ambitions? A recurring EMI?

Credit culture is on a rise in India, this is also termed the initial stages of inflation where everything seems possible until the prices of goods and services begin to rise.

What can we learn from countries that have low credit?
There are several countries like Saudi Arabia, UAE, etc which have a poor credit culture, and hence banks in these nations have no "Home Loan" kind of services.

Therefore, sellers of properties in these countries cannot sell their real estate properties at a higher price, as there will be no buyers for the same.

This means that people from these countries have more buying power than people from India or USA because our credit culture has made things more expensive.

It also means that the wallet of people living in countries with low or poor credit culture is relatively big, which empowers them to afford a lot of goods and services which people in nations such as India find impossible. 

The only way people in India or USA can consume expensive goods and services is via credit products such as credit cards, zero downpayment EMIs, etc but it makes a person's life much more stressful because of never-ending EMIs.

The USA also has a credit culture, then how does it have a Price to Income Ratio, which is second-best in the world?

The USA witnessed the great real estate crash in the year 2008 when it had a price-to-income ratio of 9, post this crisis house prices fell across the nation and they are on a path to recovery since then.

Easy credit availability led to the Great Financial Crisis in the US in 2008, post which the economy observed unemployment rates rising till 2012.

There are some other factors also which have led to an increase in the real estate prices;

• Black Money: Informal economy in different parts of the world is mostly conducted in cash, and therefore, the cash generated in the informal economy can only be parked in gold or land. Therefore, when the cash is parked in the land, it artificially pumps up the valuation in the real estate sector thereby making housing expensive in India. However, post demonetization, real estate valuations have come down drastically in India.
• Land as an investment: In India, land has always been treated as an investment rather than a consumption class. Therefore, people still find it attractive to invest in land rather than investing in capital markets. So, when a large number of people start investing in one particular asset class over other asset classes, then, naturally that particular asset class witnesses high valuations. 
• Limited Supply: Demand-Supply mismatch had also contributed a great deal to housing being expensive in India. However, this situation has been corrected in the last 5 years. We see a huge amount of housing supply nowadays and therefore prices are not increasing as they used to increase in the past.
• Agricultural Land Allocation: One reason is the regulations related to the use of land. In certain places, the land is designated for agriculture, which requires legal conversion. The town plans do not enable planned growth but can create a lot of hurdles.

Conclusion;
Although there are several different issues because land prices in India have increased over time, some of which are pretty straight-forward forward and we can avoid them together to ensure that real estate prices are in check.

There is no need to buy overpriced real estate properties.

The credit availability is slowing. One should wait to deploy capital when the credit availability stops because there will lot of money to be made when the correction sets in.