Buying a Dream House, Is It Really Affordable For All of Us

25 Jun

Posted by Shyam as Opinions

Buying a house is now affordable for both middle and upper middle class section of the society, though we have seen a significant rise the prices of property. As per HDFC Ltd, one of the biggest home loan providers in the country, the average price of a house in metros is less than, five years earning of an average middle class section of the society.

As per the research conducted by Housing Finance Company, the affordability factor, which means the number of years income of a family required to purchase o house has remarkably dropped from 5.1 years in 2007-08 to 4.5,4.7 and 4.8 years for 2009,2010 and 2011 respectively.

Chart below shows the changing income of the families with changing years, property cost and finally the affordability factor.

Year	Annual Income (Rs. lakh)	Property cost (Rs lakh)	Affordability
2011	8.3	40	4.8
2010	7.6	36	4.7
2009	6.5	29	4.5
2008	6.3	32	5.1
2007	5.3	27	5.1
2006	5	25	5
2005	3.82	18	4.7
2004	3.21	14	4.3
2003	2.72	13	4.7
2002	2.45	12	5.1
2001	2.26	12	5.3
2000	2.03	12	5.9
1999	1.82	12	6.6
1998	1.63	14	8.3
1997	1.49	17	11.1
1996	1.36	21	15.6
1995	1.2	26	22

In 1995, the affordability of the people seems to be 22 which means, 22 years income was required to purchase a house. Further after that, the property price fall and the income of people made a significant growth. This ultimately dragged down the number of years required to purchase a house. Comparing the whole data, the annual income doubled in the year 2002 at 2.45lakh in comparison to 1.2lakh in 1995 and the property price declined with the time too. Besides this, the affordability factor also improved from 22 to 5.1. This simply means, an average middle class family requiring 22 years income to purchase a house in the year 1995, just needed 5.1 years income to purchase a house in the year 2002.

Further moving up to the years when India showed a higher economic growth of above 8% the prices of property also accelerated. But the average annual income also showed a sharp rise consequently making the affordability factor almost constant for next 5 years. The affordability factor was lowest at 4.3 years in the year 2004. The affordability factor also gets influenced by the existing interest rates. Loans provided by banks are such that the EMI does not cross the half of the average income of the family. EMI is directly proportional to interest rates thus, higher the interest rates higher is the EMI. Demand for home loan changes with changes in interest rates. High interest rates as of now reveal a decline in the construction industry.

Finally, RBI should take preventive measures to bring down the interest rates. Real sector can also contribute towards the growth of the economy to a large extent.