India is a diverse country in terms of culture, religion, social status and lifestyles of its people. But it is a matter of pride that despite all diversities, India manages to go hand-in-hand at all levels. One such example is the economic disparity among the people of our country which also has a direct impact on the real estate industry. While some can afford bungalows in a city like Mumbai, other look forward to buying a compact home in a suburb that fits their budget.
Recently, the real estate market witnessed a record high level in price. However, a simultaneous increase in people’s disposable income was also recorded. This maintains the affordability and price rise balance in the Indian real estate market.
HDFC recently conducted a research and arrived at an affordability ratio of 4.1 offered by the Indian real estate market. Affordability ratio is the ratio between the average property prices to the annual income of the buyer and determines that how affordable a property is for him. It means the how many times of his annual income does a buyer have to part with for owning a property. For example, a ratio of 10 means that the buyer will have to pay 10 times of his annual income to be able to buy his dream home.A lower ratio means that the property is very affordable for the buyer and vice versa.
4.1 is the lowest ratio recorded so far, after 4.3 which was recorded in the year 2004. In the year 1995, this ratio was as high as 22. After that, it witnessed a downward trend and in 2015, the affordability ratio was 4.4.
The study suggests that real estate prices are showing good appreciation consecutively for the last 7 years. But the income levels of Indians are experiencing a sharp increase for the last 22 years. Substantial increase in the annual income and a reduced home loan rate have made it easier for the people to afford a home. People are also opting for home loans now at an increased rate.
Though the trend of taking home loans to buy property is gaining popularity in the Indian real estate industry, it is still lower as compared to other developing countries which points towards the room for growth. Mortgage penetration in India is reckoned at 9% of the GDP but in US and UK, it is 68% and 75% respectively.
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