Housing affordability worsened in four years, shows RBI survey

Mumbai: Housing affordability has worsened over the past four years as people’s income failed to keep pace with rising property prices, pointed an apex bank survey.

Among the 13 cities studied, Mumbai was the least affordable while Bhubaneswar was the most affordable city in India in terms of Median House Price to Monthly Income, shows the latest quarterly residential asset price survey. The RBI has been conducting the quarterly residential asset price monitoring survey (RAPMS) since July 2010 on housing loans disbursed by select banks / housing finance companies (HFCs) across 13 cities, viz., Mumbai, Chennai, Delhi, Bengaluru, Hyderabad, Kolkata, Pune, Jaipur, Chandigarh, Ahmedabad, Lucknow, Bhopal and Bhubaneswar.

“Housing affordability worsened over the past four years as the house price to income (HPTI) ratio increased from 56.1 in March 2015 to 61.5 in March 2019,” said the survey.

According to Median House Price to Monthly Income factor Mumbai got a score of 74.4 while Bhubaneswar got 54.3 as of March 2019.

Anuj Puri, Chairman, Anarock Property Consultants told Financial Chronicle, "There is no question that affordability has been a problem for most homebuyers, and it comes as no surprise that smaller cities are more affordable than the larger metros. Despite high demand for budget homes in the major cities, builders find it challenging to build housing in the government-incentivised Rs 45 lakh budget range. The hope that the government would revise the price definition of affordable housing in the top cities has remained unfulfilled."

"For a city like Mumbai Metropolitan Region, a budget of Rs 45 lakh is far too low. If, even after discounts and rate cuts, people are still not able to afford a home, the market is sending out a clear signal. The situation can change if a larger chunk of properties is included under the incentivised affordable category. How-ever, to expect that such incentives can somehow mitigate the high land costs in cities like Mumbai and Pune is also unrealistic. It is these high land costs, brought on by the law of scarcity, that cause properties to become hyper-expensive," he said.

On Thursday, the RBI released the results of the March 2019 round, along with the summary time series data since March 2015.

The survey compares selected cities in terms of EMI-to-income (ETI) ratio - representing loan eligibility; house price to income (HPTI) ratio – reflecting affordability; and loan to income (LTI) ratio among other parameter affordability measures.

Chennai, Delhi, Bengaluru, Hyderabad, Kolkata,Pune, Jaipur, Chandigarh, Ahmedabad, Lucknow and Bhopal got scores of 58.6, 58.5, 56.1, 60.3, 56.5 66.6, 55.9, 63.4, 70.4, 58.6 and 56.2, respectively.

“The median Loan to value (LTV) ratio moved from 67.7 per cent to 69.6 per cent between March 2015 and March 2019 showing that banks have become increasingly risk tolerant. The median EMI-to-Income (ETI) ratio has remained relatively steady during the past 2 years; however, Mumbai, Pune and Ahmedabad recorded higher median ETI compared to other cities,” said the RBI.

The movement of median loan to income (LTI) ratio also confirms worsening housing affordability as it moved from 3.0 in March 2015 to 3.4 in March 2019.