Housing affordability levels have been under pressure over the past two years due to the rise in housing prices and mortgage rates across seven major cities in India. However, there is optimism for improvement in 2024, driven by a potential reduction in the repo rate, according to JLL India. The anticipated improvement in affordability levels is expected to bolster housing sales, despite the challenges posed by increasing property prices and home loan interest rates.
Impact of Economic Trends on Affordability
The rise in the repo rate in 2022, coupled with strong demand and price hikes, contributed to a decline in affordability levels. However, in 2023, affordability levels are expected to remain relatively stable or experience marginal deterioration compared to the previous year. Factors such as stagnant repo rate movement, declining inflation, and higher growth in household incomes have partially offset the impact of rising property prices.
Outlook for 2024
JLL anticipates a positive shift in affordability levels in 2024, supported by macroeconomic fundamentals favoring a potential reduction in the repo rate. A reversal in the repo rate trajectory could lead to lower interest rates, providing a boost to the residential sales market.
Projection for Repo Rate Reduction
The report suggests a potential reduction of 60-80 basis points in the repo rate in the coming year, which could further enhance housing affordability and stimulate demand in the real estate sector.
Home Purchase Affordability Index (HPAI)
JLL has developed the Home Purchase Affordability Index (HPAI) to gauge the eligibility of households for housing loans based on their average annual income and prevailing market prices. The index reflects the ratio of average household income to eligible household income, with a value of 100 indicating eligibility for a housing loan.
City-wise Affordability Trends
- Mumbai: Estimated affordability index to dip to 88 from 92
- Delhi NCR: Index expected to decline to 121 from 125
- Bengaluru: Anticipated dip to 158 from 168
- Hyderabad: Index seen at 169 compared to 174 last year
- Pune: Marginal fall to 182 from 183
- Kolkata: Marginal improvement to 194 from 193
- Chennai: Affordability index estimated to remain flat at 162
Affordability Comparison and Market Growth Potential
Despite sustained residential price hikes, affordability levels in 2023 remain relatively higher compared to pre-COVID periods. Better economic prospects and income growth have mitigated the impact on affordability, indicating significant potential for market growth across all cities.
Siva Krishnan, Managing Director and Head of Residential Services, India, at JLL, emphasized the resilience of the housing market and the ample room for growth, driven by favorable economic conditions and improved affordability levels.
