Homes become more affordable in last 10 years

MUMBAI: Real estate prices in metros such as Mumbai may be at a record high. But, on an average, homes across the country are more affordable than they were five or even ten years ago. According to an analysis of HDFC data, the average cost of a house purchased by its borrowers was Rs 12 lakh in the year 2002. Over the years, the average amount paid for a house (by HDFC borrowers) rose to Rs 40 lakh in 2011. But salaries have risen faster. The same period saw the average borrower's salary rise from Rs 2.45 lakh to Rs 8.3 lakh. As a result, affordability - measured by the home price as a multiple of annual salary - has improved. The borrower, who on an average needed 5.1 times his annual salary to buy a house in 2002, needed only 4.8 times his annual salary in 2011. The affordability figure is a national average and over the years HDFC's borrower profile has also changed with more loans being disbursed in smaller cities. However, the long-term trend in affordability holds true for most cities because of high levels of income growth in the first decade of the 21st century. The country's per capita income has tripled from Rs 19,040 in 2002-03 to Rs 53,331 in 2010-11.

The increase in affordability would mean that housing and housing loans will continue to grow in coming years. Considering that there is a housing shortage of 26 million housing units according to Jones Lang Lasalle, the potential will last for some time. If affordability has improved for home purchase, it is has jumped for rentals. "Around 2001-02, a one-bedroom apartment in Andheri costing Rs 22 lakh would fetch a rent of Rs 8,000 to Rs 9,000. Today, the market value of the same apartment is over Rs 1 crore, but the rental income is at best Rs 25,000. Rentals have not kept pace with house prices," says Deepak Mehta, a Mumbai-based real estate broker who specializes in the suburb of Andheri. Incidentally, the golden period for buying property was the year 2004 when, on an average, the HDFC borrower paid the equivalent of 4.3 years of his prevailing salary for buying a house. It was at this time that borrowers got full benefit of tax breaks because of larger loans and interest rates started dropping. Internationally, rentals up to 25% of income are considered affordable. However, this would vary depending on how much of the income is left over after providing for basic necessities. "Monthly rentals in Mumbai are in the range of 22 to 25 basis points of the property value," says Mehta. According to real estate developers, one of the reasons for high prices in Mumbai is the freeze on supply. According to Vyomesh Shah, MD, Hubtown, high prices in Mumbai are largely because of the constraints on supply. "Today, even in a city like Ahmedabad, there are projects where you can get apartments where the rate per square foot is around Rs 2,500" says Shah.

source: http://timesofindia.indiatimes.com/business/india-business/Homes-become-more-affordable-in-last-10-years/articleshow/12958960.cms