JLL's annual Home Purchase Affordability Index shows that from 2011 to 2020, home purchase affordability improved across key Indian cities which were part of the Index.
The housing market, like many other consumer-oriented sectors, was dealt a major blow by the COVID-19 crisis. The sales of residential units plummeted, with prospective buyers postponing their purchase decisions. However, the significance of owning a home to avoid the uncertainties of living in a rented accommodation was reinforced during these difficult times. The desire to own a home is perhaps stronger now than ever, reveals a study by JLL India.
Furthermore, there is renewed interest from NRIs to own a house in India. This is driven by their hope to return to India amidst uncertain economic conditions in the European and Gulf countries. In addition to this, there is ‘affordable synergy’ in the market – low mortgage rates, stable prices and flexible payment plans, making this an opportune time for prospective buyers to enter the market. The result – more pent up demand and a surge in the number of enquiries received by developers.
While there is ‘affordable synergy’ in the market, the home purchase affordability or in simple terms, the ability of a household to make a home purchase depends on their income as well. JLL’s annual Home Purchase Affordability Index (JLL HPAI) shows that from 2011 to 2020, home purchase affordability improved across key Indian cities – Mumbai, Delhi NCR, Bengaluru, Chennai, Pune, Hyderabad and Kolkata – which were part of the Index. Despite a bigger fall in annual household income as compared to the residential prices, affordability increased in 2020. A sharp decrease in the cost of funding – average home loan rates reduced from around 8.9% in 2019 to 7.5% in 2020, more than offset the adverse impact of lower incomes on affordability.
“Initial signs of revival were visible in the residential market in the third quarter of 2020, with sales of residential units witnessing an uptick. There is ‘affordable synergy’ in the market with low home loan rates, very attractive home prices and flexible payment plans. Our analysis suggests that despite a fall in household income in 2020, home purchase affordability has increased in 2020 across all the markets under consideration. And, this makes ‘now’ a great time for end users to purchase a house. This trend of increasing affordability is likely to continue in the upcoming year, which shall facilitate a broader recovery of the residential market in 2021,” says Ramesh Nair, CEO & Country Head, India, JLL.
HPAI until 2019 indicates that Hyderabad had been the most affordable residential market. In 2020, Kolkata has overtaken Hyderabad to become the best market in terms of home purchase affordability.
In 2020, Mumbai continues to be the only market below the affordability threshold of 100. This being said, it is important to note that Mumbai is the fastest moving city, showing a significant improvement in HPAI from 47 in 2011 to 95 in 2020.
Interestingly, home purchase affordability is expected to either remain at similar levels or improve from the levels of 2020. The only difference will be the likely pace of translation of demand into actual sales volumes. This will be largely dependent upon the economic environment and the prevailing consumer sentiments, says the report.