Improved affordability in housing requirement

With fall in interest rates in the last eight months, affordability factor of house buyers has improved substantially. During the period, interest rates on home loans up to Rs 30 lakh have declined by around three percentage points to 9%, from 12%. This sharp decline in rate has improved the capacity of borrowers.For instance, at 12%, the EMI on Rs 10 lakh loan to be repaid in 20 years is Rs 11,010. But, with interest rate at 9%, a person can borrow Rs 12,30,000 with the same EMI. That means, now he can buy a house that is almost of 20% higher value than what he could have done in 2008.

In the meantime, since January, prices of residential units have also fallen by up to 30%. Together, these two factors have led to an increase in construction activities in the country. This has also brought housing within the reach of a large number of buyers. As per the Housing Development Finance Corporation Limited (HDFC), the largest lender in the housing loan market in India, the maximum affordability of a household has been computed to be 5.1 times its annual income. In other words, for a household earning Rs 3 lakh a year, an affordable house should cost at most Rs 15 lakh. The report of a high level task force under the chairmanship of Deepak Parekh, chairman of HDFC, delves into the various aspects of providing affordable housing and has recommended a similar definition of affordability. In fact, it has been seen that if one buys a house within these limits, the chances of default go down substantially. A prospective buyer's purchase decision is influenced by a host of factors ranging from price points to location. Due to the growing awareness among consumers, choice of facilities and amenities are also found to be important determinants. Uninterrupted power supply, water supply and safety and security are the other three important factors influencing a buyers decision with respect to residential project in a preferred location. The potential buyers are not much concerned about developers brand and goodwill. The survey has brought out factors influencing preferences of potential buyers pertaining to locations, projects and amenities within the projects.

Many of the so-called affordable projects are offering apartments with an area of 1,200 sq ft and above. In such cases, even though a project is affordable on the basis of rate per sq ft as calculated by Knight Frank research, the larger size of the apartments make them unaffordable. Higher cost of living and lifestyle have adversely impacted affordability of households in Mumbai and Bangalore, compared to cities like Kolkata and Hyderabad. For instance, middle class households in Kolkata, Chennai and Hyderabad can afford houses valued at Rs 14-45 lakh, whereas households of a similar status in Mumbai can only afford houses valued at Rs 12-38 lakh.The primary deterrent in providing affordable housing in cities is the high land cost involved in developing such projects. While construction cost has increased marginally in the last few years, land cost in contrast has gone up several times.

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With fall in interest rates in the last eight months, affordability factor of house buyers has improved substantially. During the period, interest rates on home loans up to Rs 30 lakh have declined by around three percentage points to 9%, from 12%. This sharp decline in rate has improved the capacity of borrowers.For instance, at 12%, the EMI on Rs 10 lakh loan to be repaid in 20 years is Rs 11,010. But, with interest rate at 9%, a person can borrow Rs 12,30,000 with the same EMI. That means, now he can buy a house that is almost of 20% higher value than what he could have done in 2008.

In the meantime, since January, prices of residential units have also fallen by up to 30%. Together, these two factors have led to an increase in construction activities in the country. This has also brought housing within the reach of a large number of buyers. As per the Housing Development Finance Corporation Limited (HDFC), the largest lender in the housing loan market in India, the maximum affordability of a household has been computed to be 5.1 times its annual income. In other words, for a household earning Rs 3 lakh a year, an affordable house should cost at most Rs 15 lakh. The report of a high level task force under the chairmanship of Deepak Parekh, chairman of HDFC, delves into the various aspects of providing affordable housing and has recommended a similar definition of affordability. In fact, it has been seen that if one buys a house within these limits, the chances of default go down substantially. A prospective buyer's purchase decision is influenced by a host of factors ranging from price points to location. Due to the growing awareness among consumers, choice of facilities and amenities are also found to be important determinants. Uninterrupted power supply, water supply and safety and security are the other three important factors influencing a buyers decision with respect to residential project in a preferred location. The potential buyers are not much concerned about developers brand and goodwill. The survey has brought out factors influencing preferences of potential buyers pertaining to locations, projects and amenities within the projects.

Many of the so-called affordable projects are offering apartments with an area of 1,200 sq ft and above. In such cases, even though a project is affordable on the basis of rate per sq ft as calculated by Knight Frank research, the larger size of the apartments make them unaffordable. Higher cost of living and lifestyle have adversely impacted affordability of households in Mumbai and Bangalore, compared to cities like Kolkata and Hyderabad. For instance, middle class households in Kolkata, Chennai and Hyderabad can afford houses valued at Rs 14-45 lakh, whereas households of a similar status in Mumbai can only afford houses valued at Rs 12-38 lakh.The primary deterrent in providing affordable housing in cities is the high land cost involved in developing such projects. While construction cost has increased marginally in the last few years, land cost in contrast has gone up several times.

Office rentals to fall 20% in 2009 realty to recover in 2010

Office space rentals in India are expected to fall up to 20% in the next three quarters, with key cities like Delhi and Mumbai slated to witness a sharp decline of 50%. According to the global real estate consultant Jones Lang LaSalle (JLL), the decline in property prices in India is expected to continue through the year with office rentals expected to fall by 15-20%, as the slowdown-hit realty sector is likely to see a recovery only in the second half of 2010.

"The largest decline in rentals is expected in Delhi and Mumbai, expected to halve its peak," JLL said in a report on global market perspective. The consultant further said the office rentals in Chennai, Kolkata, Hyderabad and Pune are expected to decline between 30% and 40% from their peak during the next three quarters, while the same in Bangalore will fall 15-20% from its peak. On the current economic scenario, the report said the recent gains in the equity market propelled optimism in the economy and if it continues, a recovery is expected by early 2010.

"Although the effects of this upturn would start showing signs in the real estate sector, the gains would definitely come in second half of 2010, when fresh demand again builds up in the market and the latent demand suppressed on fears of a downslide comes back," it added