Affordability levels to buy homes hit in last 2 years; to improve in 2024 on likely repo rate cut: JLL

The rise in housing prices and mortgage rates have impacted affordability levels to buy homes in the last two years across seven major cities but it may improve next year due to a likely reduction in repo rate, according to JLL India.

The improvement in affordability levels would further boost housing sales, which have risen despite increases in property prices and interest rates on home loans.

The consultant on Sunday released its 'Home Purchase Affordability Index' (HPAI), which signifies whether a household earning an average annual income (at an overall city level) is eligible for a housing loan on a property in the city at the prevailing market price.

"The rising repo rate in 2022 as the RBI reacted to the global recessionary and inflationary trends, plus a strong demand recovery spurring price hikes, worsened affordability in 2022," the report said.

In 2023, the consultant said that affordability levels are likely to marginally worsen or remain the same when compared to 2022.

A stronger price increase has been countered by stagnancy in repo rate movement, declining inflation and relatively higher growth in household incomes, the consultant explained.

"In 2024, we are likely to see a renaissance with affordability levels expected to be on an improving trajectory as macroeconomic fundamentals support a repo rate reversal and thereby interest rate reduction that could provide another fillip to the residential sales market," the report said. JLL expects a 60-80 basis points reduction in repo in the next year.

It has derived this index through a combination of variables, which include home loan interest rates, average household income and price of the residential apartment. The HPAI is the ratio of the average household income to the eligible household income.

Eligible household income is defined as the minimum income that a household should earn to qualify for a home loan on a 1,000-square-foot apartment at the prevailing market price.

A value of 100 means that a household has exactly enough income to qualify for the loan. A value less than 100 implies that an average household does not have enough income to qualify for a housing loan. A value of more than 100 implies that an average household has more than enough income to qualify for a home loan.

As per the data, the affordability index in Mumbai is estimated to dip to 88 from 92. In Delhi NCR, the index is seen declining to 121 from 125. The Index of Bengaluru is estimated to have dipped to 158 from 168. The index in Hyderabad is seen at 169 against 174 last year. Pune will witness a marginal fall to 182 from 183, while Kolkata will see a marginal improvement to 194 from 193. The affordability index of Chennai is estimated to be flat at 162 this year.

JLL India noted that affordability was at its lowest in 2013 before rising on a sustained basis through 2014 to hit optimal levels in 2021.

"Despite residential price hikes being sustained in 2023, better economic and job prospects and healthier income growths compared to 2022 have led to a relatively minor dip in affordability in 2023.

"In fact, affordability levels remain much above the pre-COVID and worst affordability periods for all cities, clearly highlighting the headroom for market growth to continue," said Siva Krishnan, Managing Director and Head of Residential Services, India, JLL.