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Houses become more affordable across India
Live Mint  |  April 16, 2019

Ashwini Kumar Sharma
  • Home affordability has increased in the last decade and is expected to become better due to factors like stagnant prices and higher growth in incomes
  • One of the main reasons behind increase in affordability is higher income growth compared to property prices


About a decade ago, many people believed that their income and savings could never outpace the growth in real estate and, therefore, it made sense to buy a house before the gap between their savings and home prices increased further. However, over the years, with stagnant prices, lower home loan rates, higher income growth and government incentives and subsidies, buying a house isn’t that unaffordable anymore.


Improving affordability


According to a recently launched Home Purchase Affordability Index (HPAI) by JLL India, a real estate consultancy firm, “Affordability improved across India’s key markets from 2014 to 2018 led by favourable home loan rates." JLL HPAI analyzed affordability across India’s key seven cities (Mumbai, Delhi NCR, Bengaluru, Chennai, Pune, Hyderabad and Kolkata) between 2011 and 2018 and factored in home loan interest rates, average household income and the price of a 1,000 sq.ft apartment.


In 2013, Hyderabad was the only affordable city, but the situation flipped by 2018, with all the cities, except Mumbai, becoming affordable, according to the index. Though Mumbai remains unaffordable, it witnessed a sharp improvement in affordability during the period.


Affordability indices of other real estate consultancy firms also show the same trend. According to Knight Frank’s proprietary Affordability Index, “Mumbai is India’s most expensive housing market but has seen the affordability of homes significantly increase in the last few years. It is now estimated that a house in Mumbai will cost approximately seven times the annual household income against 11 times in 2010."


As far as ideal affordability rate is concerned, according to Knight Frank, it is 4.5 times the average annual household income in a city. According to Knight Frank India Index, “Except for Mumbai (seven), NCR (five) and Hyderabad (five), all other markets are below the 4.5 affordability benchmark. Kolkata, Ahmedabad and Pune have shown improved markets in terms of affordability since 2010 and apartment prices here are just three times their average household incomes. Mumbai, while still recording a high ratio of seven, has experienced the sharpest improvement since 2010."




One of the main reasons behind increase in affordability is higher growth in income compared to property prices. According to a recent research report by Colliers International, a real estate consultancy firm, “The average disposable income per annum for middle-income group has grown around 9% across seven major cities in India over the period of 2014-2018. However, the average growth in residential property prices was less than 2% during the same period. This depicts the increasing affordability of residential spaces for the middle-income group of metro cities."


Another reason for rising affordability is the reducing property size. According to the Knight Frank report, “There is a decline in the average size of residential units at launch during the period of study which has contributed to the growing affordability in the market. Markets of Mumbai (-25%), Pune (-24%) and Bengaluru (-18%) have seen sharp reduction in the average size of homes since 2010."


Another reason is the incentives and subsidies provided by the government for affordable houses.


Road ahead


Home affordability is expected to continue improving for the same reasons because of which it has improved so far.


Samantak Das, chief economist and head of research, JLL India, said, “Affordability levels will continue to improve over the next three years for all seven cities. Over the same period, we expect a steady increase of 3-5% in property rates and 8-9% increase in average annual household income and home loan interest rates to remain range-bound."


With the latest rate cut by the Reserve Bank of India (RBI), home loan rates are expected to come down further and eventually boost the affordability of buyers.