The second edition JLL Home Purchase Affordability Index comes at a time when the Indian economy is facing the worst recession till date. Various estimates suggest that the economy could shrink by as much as 10% in F Y 20-21. Consumer confidence is at an all-time low and residential real estate, like many other consumer-oriented sectors was also dealt a major shock by the pandemic.
Our analysis reveals that between 2011 and 2020, affordability has increased across all cities. Despite a bigger fall in annual household income as compared to the residential prices, affordability increased in 2020. A sharp decrease in the cost of funding - average home loan rates reduced from around 8.9% in 2019 to 7.5% in 2020, more than offset the adverse impact of lower incomes on affordability.
The future of the residential market and the sustenance of the recovery process depends on the containment of the virus. 2021 can pan out in two different ways. If the virus is contained by Q1 2021 and economic activity resumes at full capacity, affordability is expected to improve across all the cities under consideration. In fact, in this scenario Mumbai is expected to breach the affordability threshold. If the virus outbreak is not contained in the first quarter of 2021 and economic activity remains subdued, affordability levels are likely to remain at similar levels in most cities.
Interestingly, in 2021, home purchase affordability is expected to either remain at similar levels or improve from the levels of 2020. But the broader recovery of the residential market and the likely pace of translation of demand into actual sales volumes will be largely dependent upon the economic environment and the prevailing consumer sentiments.