Homes Most Affordable in 30 Years: HDFC

Bangalore: Housing may be perceived to have gotten very expensive at the current sky-high levels, but data compiled by mortgage giant HDFC shows that home prices are near their most affordable level in over three decades.

The home prices have indeed been rising for more than 10 years, except for a temporary slump in 2009, but the 'affordability' of purchasing a house has been mostly on a declining trend for almost two decades now, as per HDFC data.

This affordability ratio, which takes into account the annual income of the home buyer along with the price of the house, declined to 4.6 in the previous fiscal, ended March 31, 2012, from as high as 22 in the year 1995.

This means that a home buyer, on an average, needed an amount equivalent to nearly 22 times his or her annual income in 1995, but now an amount less than five times of the annual earnings was required for purchasing a house.

The HDFC data, released in an investor presentation for its financial results for 2011-12, shows that affordability ratio of 4.6 in the last fiscal was the third lowest ever figure after 4.3 in the year 2004 and 4.5 in 2009.

"The reason why property prices are still affordable, despite steady increase in property prices over the years, is that income levels have also risen during this period along with added tax benefits on housing loans," HDFC Ltd Managing Director Renu Sud Karnad told PTI.

"The cost of a house as a multiple of the annual income of a borrower is currently estimated at 4.6 times which is almost the lowest ever in the last three decades," she said.

"In other words, today it takes about 4.6 years' income to buy a house. As long as that ratio stays in the range of 4.2-5.5 times, housing loan demand will be there," she added.

Karnad further said that HDFC's average loan amount this year is 19.5 lakh and loan to value ratio at origination is 65 per cent.

"So the property value for these loans will be somewhere around 30 lakh, which is affordable in today's context," she noted.

As per the historic data, the average annual income of a home buyer has crossed 10 lakh level now, marking a sharp jump from about 2-3 lakh about ten years ago.

The average home price has also risen during this period, but the surge has been relatively less sharp from about 15 lakh to near 30 lakh.

In addition to a sharper growth in income levels, the larger tax benefits have also helped make the home purchases more affordable for the buyers.