Defying an overall low-inflation trend, home prices have hit record high levels but a faster rise in disposable income has made purchasing a house the most affordable ever, according to mortgage giant HDFC Ltd.
The average property value of housing units has appreciated to an all-time high of over Rs 50 lakh in 2016, while the annual income of an average home buyer has also grown to a record high to over Rs 12 lakh, shows the latest data compiled by HDFC.
While property value has risen for seven consecutive years, income level has been on an uptrend for at least 22 years now.
A sharper increase in income levels compared with the housing prices has brought down the affordability ratio to 4.1 – the lowest in the history and below the previous all-time low score of 4.3 recorded in the year 2004.
The affordability ratio equals the average property price divided by the annual income and determines how affordable a housing unit is for a home buyer as per his or her income.
A lower ratio means it has become more affordable to purchase the house.
HDFC, which has compiled this data since 1995, said in its latest annual update on the mortgage market in India that improved affordability has largely been driven by rising disposable income and affordable interest rates on home loans.
The affordability ratio stood at as high as 22 in 1995, meaning an average home buyer needed to pay 22 times of his annual income to purchase a house.
The ratio stood at 4.4 in 2015. HDFC, the country’s largest mortgage lender with total assets of about Rs 2,90,000 crore, had a loan book of about Rs 3.8 lakh crore at the end of last fiscal, including about Rs 3.2 lakh crore for individuals.
Its average home loan size has also grown to Rs 25 lakh, from Rs 23.3 lakh in 2015.
The home finance major further said the mortgage penetration is the lowest in India at just 9 per cent of the GDP, in comparison to many other major countries, which implies significant room for growth.
Globally, the penetration level is highest in Denmark at 114 per cent while the same in the UK is 75 per cent and in the US at 68 per cent. China has mortgage penetration of 18 per cent of the GDP, the double the level in India.
As per HDFC, the actual home loan rate currently stands above 9 per cent, but effective rate works out to be as low as 3.9 per cent after taking into account various tax incentives. As per the HDFC data, the average property value has consistently risen in the last seven years, while almost doubling from about Rs 30 lakh in the year 2009.
In 2004, when the affordability ratio was at its previous all-time low level, the average property value was about Rs 15 lakh and the annual income of the average homebuyer stood at less than Rs 4 lakh.
At the peak affordability ratio level in 1995, the property value averaged at over Rs 25 lakh and the average annual income was just about Rs 1 lakh.