1. Home prices hit roof, but affordability near its best: HDFC

Home prices hit roof, but affordability near its best: HDFC

A sharper increase in the income levels, as compared to the housing prices, has brought down the affordability ratio to 4.4: HDFC

By: | New Delhi | Updated: May 17, 2015 12:23 PM
hdfc home loan

A sharper increase in the income levels, as compared to the housing prices, has brought down the affordability ratio to 4.4: HDFC. (Reuters)

Housing prices have risen to record high levels, but increase in disposable income of the homebuyers has made the purchase of a house most affordable in over a decade, according to mortgage giant HDFC Ltd.

The average property value of housing units has appreciated to an all-time high of over Rs 52 lakh, while the annual income of the homebuyer has grown to near Rs 12 lakh, also a record high level, shows the data compiled by HDFC.

A sharper increase in the income levels, as compared to the housing prices, has brought down the affordability ratio to 4.4 — the lowest in more than a decade since 4.3 in the year 2004 which remains the all-time low score.

A lower ratio means it has become more affordable to purchase the house.

The affordability ratio equals the average property price divided by the annual income and determines how affordable a housing unit is for a homebuyer as per his or her income.

In its latest annual update on the mortgage market in India, HDFC said the improved affordability has largely been driven by the rising disposable income, tax incentives and affordable interest rates.

HDFC’s Managing Director Renu Sud Karnad said the increased tax incentive limits on housing loans and for the personal taxes have helped boost the demand for housing loans, while property prices have also stabilised.

The increase in double-income-no-kids (DINK) population have also helped increase the disposable income, which has made purchase of house more affordable, Karnad told PTI.

“The end user demand is reflected in our loan book, while the absence of investors has also helped the property prices to remain stable,” she added.

HDFC, the country’s largest mortgage lender with total assets of about Rs 2,54,000 crore, has a loan book of about Rs 2.5 lakh crore that grew by 23 per cent last fiscal. Its average home loan size has also grown to Rs 23.3 lakh, while its loan to value stands at 66 per cent. It has financed over 4.9 million homes in the last three and a half decades.

The HDFC data also shows that the tax incentives have lowered the effective rates on mortgages to below 4 per cent, while the same was more than double at 8-12 per cent in the early years of the current century.

The home finance major further said that the mortgage penetration is the lowest in India at just 9 per cent of the GDP, in comparison to many other major countries, which implies significant room for growth.

Globally, the penetration level is highest in Denmark at 94 per cent, while the same in the UK is 81 per cent and in the US at 52 per cent. China has mortgage penetration of 18 per cent of the GDP, the double the level in India.

As per HDFC, the actual home loan rate currently stands between 9-10 per cent, but the effective rate works out to be 3.8 per cent after taking into account various tax incentives.

In last year’s budget, tax exemption limits on principal and interest component of a housing loan were raised by Rs 50,000 each, to Rs 1,50,000 and Rs 2,00,000 respectively.

As per the HDFC data, the average property value has consistently risen in the last seven years, while almost doubling from about Rs 30 lakh in the year 2009.

In 2004, when the affordability ratio was at its lowest, the average property value was about Rs 15 lakh and the annual income of the average homebuyer stood at less than Rs 4 lakh.

The affordability ratio was highest at 22 times in 1995, as the property value averaged at over Rs 25 lakh and the average annual income was just about Rs one lakh.

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  1. R
    May 18, 2015 at 3:18 pm
    Article funded by builders and bankers nexus. The calculations to get to the 4.4x number and 4-5% interest only apply to fringe cases. Many cases of 2nd home ownership do DINK will get zero tax benefit as most builders take 5 or more years to build home.
    1. K
      May 18, 2015 at 7:33 am
      If you look at people earning above 10 lakhs and say affordability is good...I pity you....people are living on less than a dollar per day in our India still today...great adver saying housing is affordable...who are you fooling HDFC???
      1. D
        May 18, 2015 at 7:13 am
        Deepak Parikh and his s are talking about affordability...Do you even know what affordability...Never again will I take a loan from these looter banks
        1. J
          May 18, 2015 at 5:57 am
          The affordability ratio calculation should be based on savings rather than income. Today ries might be high, but again households expenses have also increased. So, the affordability should be in comparison to net households savings. Also, property prices in India is becoming higher in comparison to other foreign countries. I don't believe that more than 3-5% of country potion earn more than 12 lakh. People who could afford have already got 2-3 houses.
          1. Nrupal Akolkar
            May 18, 2015 at 7:42 pm
            Affordability for an individual middle cl earner is directly proportional to the Rupee valuation in Global Market (USD-INR) given everything we want to have has cost escalation at least directly proportional to USD dearness against Rupee. This article is a miss if you look from buyer's perspective. But it seems a justification of cost of borrowing that one desires to maintain on borrower, which this article kind of puts forward. In reality, due to the type of development we have been seeing since quite some time now, we are seeing things getting less affordable for the middle cl.
            1. P
              May 18, 2015 at 2:55 pm
              HDFC should focus on recovery of debt from builders and investors and look at reducing their NPAs rather than putting such ic reports.
              1. p
                May 18, 2015 at 5:53 am
                I can't believe some can say that houseing is affordable in India , Honestly at this rate our next gen will never be able to afford a house/Flat
                1. Tg Ramachandran
                  May 18, 2015 at 6:44 am
                  AFFORDABILITY HAS IMPROVED?-MY FOOT!In which world HDFC is living?
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