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Buying a house more affordable now: Crisil
The Times of India  |  December 6, 2018

Prabhakar Sinha New Delhi

This is the best time to buy a house. According to credit rating agency Crisil, affordability in most cities has improved with property cost coming down to 6-8 times of annual household income in 2018-19 compared with 11-13 times five years back. Affordability is defined as the number of years’ income required to buy a house and is calculated as the ratio of the property cost to annual household income. Crisil said the affordability factor is expected to come closer to the ideal band, given a moderate growth in income estimated for mid-income households.

 

Ticket sizes have been coming down as developers launch units with reduced average area per house, led by both market needs and the impetus to affordable housing. As such, capital values in the residential segment have been under pressure of late — with a decline of 5-20% across micro markets in the last 2-3 years — and are likely to remain range-bound because of unsold inventory, said Crisil.

 

However, for the middle-income group buyer the story is different. According to HDFC, the affordability factor of customers in the income range of around Rs 14 lakh has come down to the lowest ever level of 3.7. That means a person or a family having income of around Rs 14 lakh per annum can buy a house for 3.7 years’ (44 and a half months’ salary) income.

 

In 1995, when the affordability factor was 22, a middle income family with an annual income of Rs 1.20 lakh per annum required 22 years’ income to buy a middle income group (MIG) flat or house costing around Rs 26 lakh. Over the period of time, according to HDFC chart, the MIG house’s price doubled to around Rs 50 lakh but the income of similar families today went up to close to Rs 14 lakh. This is largely due to over-supply like condition that developed in the middle-income housing segment in the country.

 

In this scenario, Crisil said, increasing launch of housing units with mid-income ticket sizes, and implementation of the Real Estate (Regulation and Development) Act, 2016, or RERA, is expected to revive demand for residential real estate in the medium term.