As the dust over key policy changes in real estate carried out during 2016 and 2017 settled, developers have started focusing on accelerating momentum. This has led to an overall increase in residential launches and sales in 2018 across the top seven cities in India. Launches grew by 53% (Y-o-Y) and sales expanded by 42% as compared to 2017.
This backed by IMF’s optimistic forecast for India’s Gross Domestic Product (GDP) at 7.1% for 2018-19 and 7.3% for 2019-2020 raises expectations of a positive outlook for the residential property segment in 2019.
However, despite the increase in launches and sales, questions that still linger in the minds of buyers are whether affordability has improved over the years? Has household income surpassed the increase in residential prices across cities? How has affordability changed in the expensive city of Mumbai?
Based on our Home Purchase Affordability Index, which assesses housing loan eligibility of a household with average annual income to buy a 1,000 sq ft house at prevailing market rate, affordability levels have improved over the last five years.
Our analysis reveals some interesting observations. Key seven cities of Bengaluru, Chennai, Delhi National Capital Region (NCR), Hyderabad, Mumbai, Pune and Kolkata witnessed improved affordability between 2013 and 2018. In 2013, only Hyderabad was affordable, but by 2018, all other cities barring Mumbai have become affordable.
Reducing mortgage interest rate, stagnant property price and growth in household income (CAGR) of 8% to 10% are the major reasons for the increased affordability across the top cities in India.
While affordability in Mumbai has significantly improved over the years, it is still to reach the affordability threshold. We are expecting to see Mumbai moving towards the brink of affordability over the next 2-3 years.
In this context, neighbouring Pune is more affordable than Mumbai. And this is a national trend.
Other cities of prime interest, such as Hyderabad, Bengaluru and Delhi-NCR, where there is equally high housing demand, are affordable and continue to serve homebuyers with more buying options. All these markets will continue to offer affordable housing options to homebuyers over the next two to three years. This also means that over the same period, these markets will continue to witness healthy demand and supply of housing, leading to further growth.
With development firms aligning themselves with the market driven demand requirements, cities such as Hyderabad, Bengaluru, Pune, Chennai and Delhi NCR will continue to offer quality housing.
As a result of a healthy supply rates will see steady increase of 3-5% over the next three years. It is pertinent to note that reducing the house size may make the market affordable without a reduction in price per square foot. However, this reduction in the size of an apartment may be a compromise on the buyer’s side.
It is pertinent to note that reducing the house size may make the market affordable without a reduction in price per square foot. However, we are of the opinion that this reduction in the size of an apartment may be a compromise on the buyer’s side.
Affordability pertaining to home purchase is going to increase across all the key seven cities between 2019 and 2021. With real estate getting more and more regulated and increasingly transparent, enhanced affordability is also expected to help fuel higher sales.
source:indiatimes
