Unaffordable housing: Dream home still too costly for most Indians

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Updated: July 12, 2019 7:09:10 AM

Builders in trouble, new launches crash, but with economy slowing and house prices not falling enough, affording them is still an issue

While Mumbai remains the least affordable city, Bhubaneswar is the most affordable city with an index value around 30% below that for Mumbai.While Mumbai remains the least affordable city, Bhubaneswar is the most affordable city with an index value around 30% below that for Mumbai.

At a time when the government is focused on ‘Housing for All’, data released by the Reserve Bank of India (RBI) on Thursday paints a grim picture, showing that affordability has worsened over the past four years, with Mumbai remaining the least affordable city, when it comes to owning a house.

And this is when most builders are facing a demand shortage despite the fact that prices are no longer rising as fast as in the past; indeed, there has been a slight reduction in prices in most areas. Sales of residential units in the top 8 cities in the country have fallen from 2.91 lakh units in FY17 to 2.1 lakh units in FY19. As a result, while the slower number of new launches has helped reduce inventory levels — from 9.2 lakh units in the year ended March 2017 to 7.9 lakh at the end of March 2019 according to PropEquity — stocks still remain very high; at current sales levels, clearing just the inventory can take several years.

As Pankaj Kapoor, managing director, Liases Foras, puts it, “Capital values have grown disproportionately in the last few years, which has made real estate more unaffordable. While prices have not risen in the last four years, affordability has not improved”. In which case, prices have to correct a lot more than they have for sales to improve in any meaningful manner.

RBI’s asset price monitoring survey showed that the house price to income (HPTI) ratio — an index of affordability — rose from 56.1 in March 2015 to 61.5 in March 2019 across the country.

While Mumbai remains the least affordable city, Bhubaneswar is the most affordable city with an index value around 30% below that for Mumbai.

The data further showed that the median loan-to-value ratio has risen from 67.7 to 69.6 in the last four years, suggesting that banks are increasingly becoming more risk-tolerant in an attempt to push sales.

Developers are also struggling on account of high leverage and constrained cash flows due to falling sales. Even the luxury market is not immune to this sluggishness. Anuj Puri, chairman, ANAROCK Property Consultants, said, “Only about 5% demand is now investor driven, otherwise sales are being driven by end users even in the luxury segment which is a shift from three years ago”.

The decline in sales has impacted the financials of most realty developers. However, the impact is felt more by those who have large stock in the premium or luxury category priced in the above Rs 5 crore depending on the cities that they operate. DLF, for instance, saw its profits decline over 70% to Rs 1,319.22 crore in FY19 compared to a year ago. Indiabulls Real Estate saw a steep fall of 78% in its net profit to Rs 504.32 crore.

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