The average affordability of new homes across the country has improved over the past decade, according to an affordability benchmark by Knight Frank India.
Affordability Benchmark is a ratio of the average house prices to household incomes. The average apartment in the Mumbai Metropolitan Region (MMR) now costs seven times the average household income as compared to 11 times in 2010, according to the report.
The affordability benchmark is based on three parameters — house price to household income ratio, rent as a proportion of income and real house price growth compared to real income growth.
Considering affordability statistics have moved dramatically since 2010, here are the factors that are making new homes more affordable:
> Plummeting sales
The annual apartment sales plummeted 38 percent in 2017 following a peak in 2011. Over 3.5 lakh housing units were sold in 2011. However, the sale decline to below 2.5 lakh in 2017 owing to a spurt in ticket-sizes of apartments as developers back then were heavily betting on increasingly larger units.
After the sales plummeted in 2017, real estate developers were left with record unsold inventory levels, with few takers. Developers then had to dole out freebies and discounts and eventually compromise on prices, especially over the past two years, to entice homebuyers.
The chart below shows the number of units sold between 2010 and 2017.
> Decline in average unit size of housing
Due to decline in sales, developers were forced to recalibrate their market strategies such as reducing the average unit size of the housing to attract new buyers and restricting the number of new launches to reduce their inventory holding.
The move also helped developers counter rising land prices and high input costs.
The average unit size of housing stock has declined across most of the top Indian cities including MMR, National Capital Region (NCR), Bengaluru, Pune, Chennai and Kolkata. The average unit size of housing stock has gone up in cases of only Hyderabad and Ahmedabad.
The decline in average ticket size of the property helped push up the affordability of houses in these cities.
> Regulatory interventions
While the fall in prices may have played a major role in the improvement in affordability of houses, structural reforms, and the government’s push for affordable housing also seem to have played a role.
The government has brought in the Benami Transactions (Prohibition) Amendment Act, 2016 and the established a unified realty sector regulator, RERA. It also launched an affordable housing scheme such as ‘Housing for All by 2022’ and granted infrastructure status to affordable housing projects to bring down the price of houses.
Sales in 2018 recovered owing to the increased affordability of houses, reducing prices and ticket sizes.
While these reforms and schemes are in place, a proper implementation of the law in the real estate sector is one of the key challenges. Over 80 percent of consumers are of the view that there has not been much change in the property buying experience despite enactment of the new regulatory mechanism, according to a pan-India survey by Track2Realty.Realty players have also expressed concerns over long approval processes, unavailability of land records and a high cost of funding.