- Samantak Das
- Rohan Sharma
- Ankit Bhartiya
The JLL Home Purchase Affordability Index was started in 2019 and is a first-of-its-kind dynamic tool that considers the interplay of household income, home loan rates and property prices to examine home purchase affordability levels across the top seven residential markets of India.
Interpretation of the Index:
HPAI is the ratio of the average household income to the eligible household income. Eligible household income is defined as the minimum income that a household should earn in order to qualify for a home loan on a 1,000 sq ft apartment at the prevailing market price.
- A value of 100 means that a household has exactly enough income to qualify for the loan
- A value less than 100 implies that an average household does not have enough income to qualify for a housing loan
- A value of more than 100 implies that an average household has more than enough income to qualify for the home loan
Tracking affordability across the top seven markets
Home purchase affordability was at its nadir for all cities in 2013. Mumbai was the most unaffordable with the average household income being barely enough to avail a home loan to afford the purchase of less than half of a 1,000 sq ft apartment. In fact, barring Hyderabad, one couldn’t buy a full 1,000 sq ft apartment in any of the top seven cities with the requisite budget and home loan amount.
Affordability improved markedly from 2014 to 2021 and hit peak values, marking a sustained period which was conducive for home purchases. Affordability levels declined for the first time in a decade on a y-o-y basis in 2022, as rising interest rates along with residential capital value growth put a dampener on affordability. In 2023, affordability levels are likely to marginally worsen or remain the same when compared to 2022. A stronger price increase has been countered by stagnancy in repo rate movement and a relatively stronger growth in household incomes.
We forecast that an inflation number within the lower end of the RBI’s target band will support a repo rate cut next year. As economic conditions remain favourable towards better income growth, affordability for 2024 is expected to improve and stand second only to 2021 peak affordability levels. This will keep buyers’ affordability within a very comfortable range and sustain the growth momentum in the residential market over the next year as well.