Affordability level in housing markets dips in 2022: JLL India

NEW DELHI: Affordability level to buy housing properties is estimated to have declined this year across seven major cities due to rise in mortgage and property rates, property consultant JLL India said on Monday.

Affordability index in all seven cities, except Mumbai, is in comfortable zone. Kolkata, Pune and Hyderabad are expected to remain the most affordable residential markets.

The consultant released its 'Home Purchase Affordability Index' (HPAI) that signifies whether a household earning an average annual income (at an overall city level) is eligible for a housing loan on a property in the city, at the prevailing market price. It has derived this index through a combination of variables which include home loan interest rates, average household income and price of the residential apartment.

The HPAI is the ratio of the average household income to the eligible household income. Eligible household income is defined as the minimum income that a household should earn in order to qualify for a home loan on a 1,000 square feet apartment at the prevailing market price.

A value of 100 means that a household has exactly enough income to qualify for the loan. A value less than 100 implies that an average household does not have enough income to qualify for a housing loan. A value of more than 100 implies that an average household has more than enough income to qualify for the home loan.

According to the report, Kolkata, with an estimated value of 193, is the most affordable residential market among the top seven cities, followed by Pune (183) and Hyderabad (174), Bengaluru (168), Chennai (162), Delhi (125) and Mumbai (92).

Last year, Kolkata had HPAI valued of 212, Hyderabad (196), Pune (195), Bengaluru 185, Chennai 181, NCR 140 and Mumbai 100.

''In 2022, affordability gains have been slightly mitigated as inflationary pressures have caused developers to pass on the rise in input costs to the buyers, demand has supported price increases and the RBI's repo rate hikes have resulted in higher home loan costs,'' the consultant pointed out.

The report highlighted that the affordability was at its lowest for all cities in 2013, with Mumbai being the most unaffordable with the average household income being enough to just qualify for a home loan to purchase less than half the size of a 1,000 square feet apartment.

Between 2013 and 2021, JLL said that the affordability increased consistently across all cities and hit peak values, marking the best time for home purchases.

Samantak Das, Chief Economist, and Head of Research at JLL India, said, ''The affordability score is a stepping stone for developers and other stakeholders toward strategic decision-making around project activity, pricing decisions, and other relevant parameters that could impact the affordability quotient of a prospective homebuyer.'' In 2021, he said, the resumption of economic activities by the second half spurred a recovery in household incomes while improving buyer activity also supported minor price increases.

''In fact, affordability was at its best across all cities in 2021, marking it as the most opportune time for home purchases. Affordability levels are likely to trend down through the end of 2022 and thereafter in 2023 as well. Mortgage rates are likely to move up further to near 8-year highs. Price pressures and slower income growth are further likely to create a temporary glitch for affordability,'' Das said.

However, he said this will be a temporary phase and the momentum is likely to sustain also on the expectations of moderating inflation supporting a reversal in repo rate hikes.

Longer loan tenures and pricing deals will be likely measures from stakeholders to keep buyers' affordability levels within comfort, Das said.