On Wednesday, RBI raised its repo rate by 35 basis points, or 0.35 of a percentage point. The latest was s the fifth successive hike in the policy rate since May, pushing it to 6.25% and making loans expensive. The policy rate has now reached the highest level since August 2018.
A combination of rising interest rates and prices has affected affordability, and it may weaken further in 2023 amid the increasing cost of acquiring a house, said a JLL India study. But the momentum inhibitor is unlikely to last long, as India’s focus on economic growth and likely easing of inflationary pressures are expected to reverse the current interest rate growth.
While affordability is decidedly weakening, the market is still some way off the worst affordability periods for all cities and is unlikely to see a return to those levels. This, along with better future sentiment, is expected to keep the residential markets in an upbeat mood next year, said JLL India.
Affordability across the seven key residential markets in India started to improve from 2014, until affordability hit its peak towards the end of 2021.
Mumbai has been the fastest-moving city in terms of improvement in its Home Purchase Affordability Index (HPAI) score and became an affordable market with its threshold hitting 100. The market is likely to slip below the threshold, but only slightly and remain much above its HPAI low of 43 in 2013.
A value of 100 implies that an average household has enough income to qualify for a home loan to purchase a 1,000 sq ft apartment. A higher value indicates increased affordability.
Affordability was at its lowest for all cities in 2013, with Mumbai being the most unaffordable. With an HPAI reading of 43, the average household income wasn’t enough to get a home loan to purchase a 500 sq ft apartment.
According to JLL Research’s analysis, between 2013 and 2021, affordability increased consistently across all cities and hit the peak values, marking 2021 the best time for home purchases. “What remains pertinent is that we are coming off an 18-month period of a robust recovery in residential demand even as prices and interest rates have moved up during the latter part of this timeframe. And affordability, despite the estimates of a decline, will still remain quite attractive and second best only to 2021,” said Siva Krishnan, managing director and head of residential services – India, at JLL.
Home buyers also take into account prevailing economic scenarios, employment market prospects, income & job stability and future income expectations, savings and inflation, he said.
