Houses in Indian cities are far more affordable now as compared to 2010, especially in Mumbai, Pune and Bengaluru, making it the right time for fence sitters to take the plunge.
While buyers in Mumbai had to shell out 11 times their annual income to buy a house in the megalopolis in 2010, the figure is now down to just 7.2 times their annual income, making houses more affordable than they were eight to nine years back, according to Knight Frank Research's affordability matrix.
The matrix measures the number of times a family's annual income that it has to shell out to buy a house. The figure has gone down from six times to five times for the National Capital Region (NCR), from 5.6 to four for Bengaluru, 4.6 to 2.6 times for Pune and 5.4 to 4.1 times for Chennai.
Falling prices and sizes
This increase in affordability has been led by a couple of factors. Contracting demand due to skyrocketing prices led to a sluggish period of low residential sales until 2017 and developers were forced to reduce prices in the wake of rising unsold inventory.
"Developers have corrected prices due to sluggish sales over the last two-three years. We shall see more stress for developers for some more quarters and we may see them bringing down prices further. It could be in the form of festival discounts or the result of negotiations with prospective buyers," Gulam Zia, Executive Director, Valuation and Advisory, Retail and Hospitality at Knight Frank India told Business Today.
Another factor contributing to increasing affordability is the shrinking size of apartments. The average apartment sizes shrank by 26 per cent during 2014-2018, according to Knight Frank. So, in 2014, if a 2BHK apartment had an area of 1000 sq ft, it will now be 740 sq ft.
"This reduction in sizes has made houses more affordable," he added.
Besides this, mortgage lending rates have come down and the government has announced incentives for buyers, including tax cuts and subsidies for affordable housing segment. Under the PM Awas Yojna (PMAY), households with an annual income of up to Rs 18 lakh can avail Rs 2.3 lakh upfront subsidy for a home. Buyers are also eligible for income tax exemption on housing loans.
Yet, the sales have been almost stagnant for the last three years. "Consumers have a tendency to wait for further price reduction in such a scenario. If markets sentiments remain this way, then further correction is the only way to bring in people," Zia said.
Despite the improved affordability and incentives for buyers, house ownership remains out of reach for many aspiring homebuyers, and that makes metros a big opportunity for rental housing. With the government working on bringing in Model Tenancy Act (MTA), the rental housing is set to get a boost in India.
Sudip Mullick, Partner, Khaitan & Co, said limited policy relating to rental housing and existing legislations being unfriendly to landlords have been a big deterrent for creation of rental housing stock in the country.
"The MTA provides a much-needed independent mechanism specially engineered to deal with issues pertaining to rental premises. MTA will provide for speedy remedies to both owner and tenant. It will enable the court to deal with more legal factors, which require evaluation of various issues arising out of changing environment of complex commercial transactions, government policies and new laws," he added.
India has nearly 11.09 million urban vacant housing units of which 10 states and Union Territories contribute 78 per cent (8.64 million) to total vacancy levels.
According to joint study by Knight Frank and Khaitan & Co, the MTA will be instrumental in institutionalising rental housing, which is largely unorganised in India.
"If rental housing is institutionalised with the introduction of a legal framework as envisaged, it will help in creating large purpose-built rental stock, which can also attract institutional investments in the long run," the study said.
As per Census 2011, there are 27.37 million rented households in India, of which 79.4 per cent (21.72 million) are in urban areas.