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Housing becomes less affordable, reveals RBI study
The Times of India  |  July 12, 2019

TNN Mumbai

Even as the real estate industry complains of a slowdown in sales, a Reserve Bank of India (RBI) survey has said that housing has become less affordable over the last four years. This indicates that developers are holding on to prices. According to the report, Mumbai remains the least affordable city in India, while Bhubaneswar has the cheapest real estate among the 13 cities that were studied by RBI.


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


The average loan to value ratio moved from 67.7% in March 2015 to 69.6% in March 2019. A spike in this ratio reflects lenders taking higher risks as they would have a 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 FY19 at 12.76 lakh — up 8% from 11.9 lakh in FY18.


Home buyers in Mumbai now pay 43.3% of their income as EMI as against 42.6% of their income in March 2015. In Chennai, it has gone up from 36.7% to 38.4%, while in Delhi borrowers who used to pay 35.1% of their salaries now have to set aside 36.9%. Among metros, only Bengaluru has seen the EMI to income ratio unchanged at 35% even as Kolkata and Hyderabad have seen a rise from 34% and 35.1% to 35.8% and 36.8% respectively. The RBI’s quarterly residential asset price monitoring survey was 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 .


Interestingly, the RBI’s study is in sharp contrast to the experience of HDFC. The country’s largest housing finance company said in a presentation to investors 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 overall value of property it has financed has come down marginally while incomes have slightly risen.


Bankers say that HDFC’s experience might be different because of the focus on affordable housing. A large part of the growth for the mortgage giant comes from small cities or from financing housing projects at the outskirts of metros. As a result, HDFC’s average loan size is Rs 27 lakh.