Most Indian cities have witnessed a decline in the cost of properties by 6 to 8 times of the yearly household income in 2018 as against the 11 to 13 times 5 years ago. This has been revealed by a renowned global credit rating agency, so make the most of this affordable phase. But what does the term ‘affordability’ actually mean in relation to property purchase?
The number of years’ income you need to save for buying a home is referred to as affordability.
The measurement of affordability is done by calculating the ratio between yearly household income and the cost of the property. Based on the expected moderate income growth in the middle-income groups, the affordability factor is anticipated to reach the most suitable range.
To drive the affordable segment and fulfil market needs, developers have taken to launching lower ticket sizes. The area per house has decreased on an average. This has caused the residential segment’s capital values to be under pressure, having declined over a couple of years by 5 to 20 per cent across the micro realty markets and is about to stay the same due to the presence of unsold inventory.
The situation for buyers belonging to the middle-income group is somewhat like this as has been stated by HDFC. The affordability factor has become the lowest ever reaching a level of 3.7 for home buyers with an annual household income in and around 14 lakh rupees. In simple words, if you are earning a yearly income of about 14 lakh rupees, you will have to save the income of 44 months and a half or 3.7 years for purchasing your house.
But back in 1995, the picture wasn’t that nice as the affordability factor was 22. This means that the individual buyer or the entire family earning 1.20 lakh rupees in a year had to wait 22 years for saving the income for buying a flat priced around 26 lakhs (in the MIG segment).
As shown by the HDFC chart, the price of housing units in the Middle Income Group category has risen to about 50 lakh rupees while the annual income of MIG households has increased to14 lakhs. The reason behind this is the over-supply in the country’s middle-income housing.
According to the aforementioned global rating agency, the residential realty market is anticipated to witness an increased demand due to RERA in action and more houses with mid-income ticket sizes getting launched.
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