Housing became less affordable over last four years

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Over the last four years, housing has become less affordable amid reports of a slowdown in sales, according to RBI survey.

New Delhi: According to a Reserve Bank of India (RBI) survey, over the last four years housing has become less affordable amid reports of a slowdown in sales. It indicates that the developers are holding on to prices. The report suggests that Mumbai remains the least affordable city, while Bhubaneswar has the cheapest real estate among the 13 cities studied by RBI.

The study measures affordability by comparing the price to the monthly income of average home loan borrowers. According to the report, the house price to income ratio for all the cities increased to 61.5 in March 2019 from 56.1 in March 2015. Another measure used is the loan to income ratio, which has increased to 3.4 in March 2019 from 3 in March 2015.

It may, however, be noted that the average loan to value ratio moved to 69.6 per cent in March 2019 from 67.7 per cent in March 2015. A spike in this ratio suggests that the lenders are taking higher risks as they would have lower security if real estate prices crash. A report by real estate consultancy Liases Foras placed the unsold housing stock in 30 cities at the end of the financial year 2019 at 12.76 lakh, up 8 per cent from 11.9 lakh in the financial year 2018, according to a newspaper report.

Worth mentioning here is that home buyers in Mumbai now pay 43.3 per cent of their income as EMI (equated monthly installment) as against 42.6 per cent of their income in March 2015. In Chennai, it has increased to 38.4 per cent from 36.7 per cent, while in Delhi borrowers who used to pay 35.1 per cent of their salaries now have to set aside 36.9 per cent. The EMI to income ratio seen unchanged at 35 per cent only in Bengaluru. However, Kolkata and Hyderabad have seen a spike from 34 per cent and 35.1 per cent to 35.8 per cent and 36.8 per cent, respectively. The quarterly residential asset price monitoring survey of RBI, conducted by studying home loans disbursed in Mumbai, Chennai, Delhi, Bengaluru, Hyderabad, Kolkata, Pune, Jaipur, Chandigarh, Ahmedabad, Lucknow, Bhopal and Bhubaneswar. Among these, Mumbai, Pune and Ahmedabad recorded a higher median EMI to income ratio.

The country’s largest housing finance company HDFC in a presentation to investors said, that affordability, measured as ratio of property prices to annual income, had reduced from 4.4 in 2015 to 3.9 in 2014. This meant that borrowers were able to buy a house with 3.9 years of salary as against 4.4 years in 2015. According to HDFC, this has happened because the overall value of the property it has financed has come down marginally while incomes have slightly risen.