As good times do not last forever, now is the time for seekers to buy their homes in India. The Home Buying Affordability Index indicates that between 2013 and 2021, affordability has steadily increased in major Indian cities, making home buying more conducive.
Housing affordability is the ratio of the annual median family income to the annual income needed. Previously, the average cost of buying a home was equal to seven years of home seekers’ income, which is now reduced to five years.
With a sustained economic recovery, the resumption of sector activities, the rise of new hires and the festive windfall have played a catalytic role in home buying. The increase in the speed of sales and the record number of real estate registrations are part of the affordability scenario. Mumbai’s most expensive city has seen a notable increase in housing affordability index over the past few years. The interplay between house prices, income and mortgage rates impacts a household’s ability to afford a home.
The Indian property market had been suffering for some time from a slowdown, subdued demand, muted investment and a liquidity crunch. The COVID pandemic has not spared the real estate sector from its threat; it acted as a demand stimulus by supporting the value of owning a home. The value of its own safe nest has sparked a sense of stability and security it provides in volatile market cycles. This has prompted long term renters to enter the home buying zone and current owners have taken the plunge to upgrade to a better and bigger apartment with a new normal lifestyle.
The favorable home affordability index is the result of several factors such as price rationalization, accommodative and ten-year interest rates, low cost credit for home purchases, personalized flexible payment, the low EMI, the package of services offered by banking and non-banking financial institutions having a significant impact on ‘affordability’. Especially since the majority of house purchases in India, 90%, are done with a mortgage according to the media.
India’s GDP growth curve is on an upward curve, with new hiring in a frenzy, job creation, restoration of wage cuts as business operations gain ground and vaccination campaign catches up in the background, bringing life and the economy back to normal. The average annual consumer inflation index also shows a positive effect.
As the consumer confidence index rebounds, demand for home purchases has reached new highs with a large number of actual buyers entering the real estate market. Investments from both domestic and international investors in the NRI have been gaining momentum. This is the ideal time for investors and end users to buy a house in India. The COVID crisis has entrenched the fact that the need for housing is perennial, which will lead to a sustainable demand for the purchase of housing. The increase in demand led to the decline of excess unsold inventory. Unsold inventory levels have dropped from 5 years to 1.5 years, prompting developers to prepare for the launch of new projects. Move-in demand was preferred, but gatekeepers are closing deals in under-construction projects from brand developers. The market consolidation trend is giving a head start to organized brand players to expand its market share in micro markets and housing segments. The market is witnessing an increase in demand for mid-range and luxury housing following the modernization of spacious apartments in a communally-living township with many social and civic amenities. Location with ease of connectivity is a prime factor for demand generation and a host of mega infrastructure projects in the pipeline will script the growth story of the real estate landscape.
Media reports suggest that mortgage rates have started to stabilize and house prices have bottomed out; thus, the aspect of affordability may be impacted. This is a point home seekers should note – they should make the decision and buy their home before the market scenario transits.
The author is the National Vice President of NAREDCO and the Managing Director of the Hiranandani Group.