Higher Home Affordability Index conducive for home buying now

Home Purchase Affordability Index indicates that between 2013 and 2021, affordability increased consistently across the key Indian cities, making home purchase more conducive.

As consumer confidence index rebounds, home buying demand has reached new heights with a large number of actual home buyers entering the property market.

As good times don’t last forever, the time is ripe for home seekers to buy their aspired home in India. Home Purchase Affordability Index indicates that between 2013 and 2021, affordability increased consistently across the key Indian cities, making home purchase more conducive. Housing affordability is the ratio of the annual median family income to the annual necessary income. Earlier, the average cost of buying a home used to be equal to 7 years of the home seekers’ income, which has now reduced to 5 years.

Steady economic recovery, resumption of sectoral activities, fresh hiring gaining momentum, and festive bonanza played a catalyst role fueling home buying. The uptick in sales velocity and record high property registrations coin in with home affordability scenario. The most expensive financial city of Mumbai has witnessed a noticeable rise in home affordability index in the last few years. The interplay between property price, income and mortgage rates impacts the ability of a household to afford a home purchase.

Indian property market was ailing from slowdown, subdued demand, muted investment, and liquidity crisis for a while now. The Covid pandemic though didn’t spare the real estate sector unscathed from its menace, it acted as a demand stimulus by underpinning the value of owning a house. The value of own safe nest triggered a sense of stability and security it offers in volatile market cycles. It induced long time renters to enter the home buying zone and current homeowners took plunge to upgrade to a better and larger apartment with new normal lifestyle.

Favorable Home Affordability Index is outcome of multiple factors like price rationalization, interest rates are accommodative and decadal low, low-cost credit for home buying, customized payment flexi plans, low EMI, bouquet of services offered by banking and non-banking financial institution significantly impacting ‘affordability’. Especially since a majority of home buying in India, a whopping 90 per cent happens with a mortgage as per media reports.
 
The festive season FY 2021 has seen a quantum jump in home sales. Economic indices, as reported in media, suggest that as we reach the end of 2021, household incomes have witnessed a sharp increase – the media reports peg this as between 7 and 9 per cent, calculated as per the base of 2020. This is a weighted average of the top 7 real estate markets in India; where home prices have largely remained stagnant, across most of India’s prime residential markets.
 
India’s GDP growth curve is on upward curve, with fresh hiring on spree, employment generation, restoration of pay cut as business operations gains traction, and vaccination drive catching up in the backdrop, bringing life and economy to normalcy. The year-on-year average consumer inflation index also shows a positive effect.
 
As consumer confidence index rebounds, home buying demand has reached new heights with a large number of actual home buyers entering the property market. Investment from the domestic as well as international NRI investors have been garnering momentum. It marks an ideal time for investors and end users to buy house in India. Covid crisis has ingrained the fact that need for home is perennial and this will lead to sustainable home buying demand. Increase demand has resulted in dip of an overhang unsold stock. The unsold inventory levels have dropped from 5 years to 1.5 years which nudge developers to gear up for new project launches.

Demand for ready to move in has been preferred, but fence sitters are closing transactions in an under-construction projects from the branded developers. Trend of market consolidation gives a cutting edge to an organised branded players to widen its market share across micro markets and housing segments. The market witnesses spike in demand for mid and luxury housing in the wake of upgradation to spacious apartments in a community living township with ample of social and civic amenities. Locations with ease of connectivity are a prime factor for demand generation and a slew of mega infrastructure projects in pipeline will script the growth story of real estate landscape.
 
Media reports suggest that home loan rates have started stabilizing and home prices have bottomed out; so, the affordability aspect may get impacted. This is a point for home seekers to note – they should take the decision and buy their home before the market scenario transit.
 
(By Dr. Niranjan Hiranandani, National Vice Chairman, NAREDCO & MD, Hiranandani Group)

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