Realty prices up but so are income levels, says HDFC report

In its latest annual report on the prevailing scenario in the country's massive mortgage market, housing finance major HDFC Ltd has acknowledged the fact that property prices have increased to record high levels.

However the report also points out that while housing prices have increased, a increase in the disposable income levels among potential homebuyers in the country has also made buying a home now most affordable than over the past decade.

According to the data compiled by the company, the average property value of housing units had recorded a steady increase to touch a new high of approx INR 52 lakhs, but cushioning the impact of this increase was a proportionate increase in the annual income levels of homebuyers which now stood at approx INR 12 lakhs, also a record high in itself.

The report further adds that this spike in disposable income levels vis-à-vis property prices was one of the primary factors along with others like affordable interest rates and tax incentives for the realty sector, responsible for reducing the affordability ratio, a key economic indicator, to its lowest level of about 4.4 in well over a decade, since the 4.3 level it breached in the year 2004, which till date remains its lowest-ever level.

In industry parlance, the affordability ratio equals the average price of property divided by the annual income, revealing how affordable a home is for a potential buyer vis-à-vis his or her income levels. A lower ratio therefore indicates that it has now become more affordable for buyers to buy a home.

Elaborating further on the key points raised in the report, HDFC's managing director Renu Sud Karnad explained that the recent increase in tax incentives on housing loans and other personal taxes in the latest budget had played a key role in increasing demand for housing loans among home seekers, while property prices across the country had also stabilised to a great extent.

She further added an increase in the numbers of DINK (double-income-no-kids) families had also played a key role in increasing levels of disposable income among potential home buyers making it easier to purchase a home. "The end user demand is reflected in our loan book, while the absence of investors has also helped the property prices to remain stable," she added.

HDFC, is the country's largest mortgage lender with total assets of approx INR 2, 54, 000 crore, with a loan portfolio of about INR 2.5 lakh crore, which grew by about 23 percent in 2014-15.

The housing finance major's average home loan size has witnessed a growth to approx INR 23.3 lakh, while its loan-to-value stands at about 66 percent. The company has financed over 4.9 million homes in the country over the last three and a half decades.

…but home prices in China down 6.1 percent

While property prices in India have recorded an upward trend inspite of sluggish market conditions, in neighboring China the average prices for new homes across 70 of its major cities have fallen for the eight consecutive month in April, down approx 6.1 percent, from a year earlier.

According to data released by the National Bureau of Statistics, prices for new homes in Beijing tumbled by approx 3.2 percent last month (from levels recorded a year earlier), vis-à-vis the previous month's drop of about 3.7 percent.

Elsewhere in Shanghai for example, home prices were down 4.7 percent last month from the same time a year ago, versus a 5 percent fall in March. They were up 0.6 percent from the previous month.

According to industry experts, China's real estate investment growth continues to grapple with a slowdown in the first four months of 2015, touching its lowest levels since May 2009 mainly due to a marked slowdown in new construction activity. Experts add that the situation is expected to improve only the country's massive stocks of unsold housing inventory are liquidated, which is not likely to happen anytime soon as the country's slowing economy is going through a turbulent phase.