Dream house difficulties

S C Dhall 

Housing affordability in India has deteriorated in the past four years with Mumbai being the costliest city in the country. With the focus on affordable housing, tax sops  being offered to developers launching homes in the low price bracket and stagnant real estate prices in  most of the cities in the past few years, the scales should be tipped in the favour of homebuyers looking to buy their dream homes. But a recent report by the RBI shows that housing affordability has worsened. This affordability has taken a hit on account of an increase in the house price to income (HPTI) ratio from 56.1 in March 2015 to 61.5 in March 2019, according to RBI’s recent Quarterly Residential Asset Price Monitoring Survey (RAPMS). This means that Indians now have to shell out a bigger portion of their earnings to buy a home than in 2015. 

The survey was conducted on housing loans doled out by select banks/housing finance companies (HFCs) across 13 cities. The RBI has been conducting such surveys since July 2010.  

India’s per-capita income is estimated to be Rs 10,534 a month in FY19 — a 10 per cent increase from FY18. Home price increase has averaged only 2 per cent in the past two years, as per a report from real estate consulting firm Colliers. Data from Knight Frank India noted that during the past four years, home price increase in most of the top eight cities of India had been below retail inflation growth. Also, interest rates have been cut and home loan rates are about 9 per cent. With higher income and moderate home prices and low interest rates, why are houses not still affordable in the country? The following are some of the factors  that have led to a dip in affordability:  

• Many housing project launches were in the higher-end segment. In 2014, budget homes (priced less than Rs 50 lakh) only accounted for 14 per cent of the overall launches. While this has been improving and accounts for 51 per cent of the launches in the first half of 2019, it will take time for the projects to be completed and the impact to be seen
• While monthly incomes seem to increase. Only 1.6 per cent of the Indian workforce earns Rs 50,000 or more monthly. And 57 per cent earn less than Rs 10,000 per month. Also, employment growth has been slow over the past few years. These reduce the median income and, hence, affordability.
• A report by the RBI on household finances showed that 77 per cent of the wealth is in real estate. This leaves less room for new purchases as the wealth is not liquid. Also, based on data from real estate developers’ association CREDAI, the average age of a homebuyer has decreased from 42 earlier to around 28. Younger people typically have lower affordability. 

However, it is not all gloom and doom for homebuyers as recent data is hinting at some improvement. RBI data shows that HPTI improved from its peak of 62.7 in March 2018 to 61.5 in March 2019; LTI improved slightly from 3.5 to 3.4 in the same period.

The report also showed that banks are becoming more risk-tolerant while granting housing loans and are ready to offer higher loans against the value, the RBI survey discloses. “The median loan-to-value (LTV) ratio moved from 67.7 to 69.6 between March 2015 and March 2019, showing that banks have become increasingly risk-tolerant,” the survey added.

What is Affordability Index

• A popular one is the ratio of house price to income (HPTI) — the median home price to the median household income in a city. 
• Another metric is the ratio of loan to income (LTI) — the median home loan taken to the income of the borrower. 
• A third metric is EMI to income (ETI) — median EMI paid to household income.

A lower number in all these cases indicates that prices are lower relative to income and, hence, affordability is more.

Bhubaneswar in Odisha has emerged as the most affordable city in India in terms of Median House Price to Monthly Income while Mumbai remains the least affordable.  Mumbai with a HPTI of 74.4 continues to be the least affordable city in India, Bhubaneswar with a HPTI of 54.3 is the most affordable one, the RBI said. 

However, despite being the most expensive city in India for homebuyers, Mumbai’s affordability has improved to 74.7 HPTI in the March quarter compared to 76.9 in the December quarter.