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Buying a house is becoming more difficult for Indians: RBI report

Indians are spending more of their income to service home loan EMIs and taking larger loans compared to their incomes to buy a property, says a Reserve Bank of India (RBI) report. ET Wealth look at the key findings.

  • Mumbai remains the least affordable city but other metros are also not affordable for the average Indian
The HPTI ratio is the average house price expressed as a multiple of a borrower's average monthly income.
HPTI-ratio

As of March 2019, the average house price in India was equal to 61.5 times an average Indian's monthly income. A rise in the ratio means that houses have become less affordable in cities across India.

  • Some cities have become more unaffordable than the rest
There has been a 10% jump in HPI ratio over past four years.
city-comparison

The average house price in Mumbai, which was was 64 times the average monthly income in March 2015, shot up to 74.4 times in March 2019, indicating rise in unaffordability over the longterm. Rise in unaffordability has been the sharpest in Hyderabad (26%), followed by Chandigarh (21%) and Ahmedabad (18%).

  • EMIs rising, but no threat of debt trap
The EMI to income ratio represents EMIs as a percentage of monthly income.
emi-rising

Over four years, the share of EMIs in Indians' monthly income has risen marginally. However, it adheres to the thumb rule of EMIs not exceeding 40% of monthly income. This points to prudent assessment of borrowers' loan-repaying capacity by banks.

  • Average home loan size has grown
Loan-to-value ratio (LTV) is the size of loan as a percentage of property value.
average-home-loan

While the average LTV has increased since March 2015, it has started shrinking since June 2018, pointing to banks becoming more conservative in sanctioning large loans. As of March 2019, banks fi nanced 69.6% of property purchase price.

  • Buying a house in Mumbai, Ahmedabad or Pune require larger loans
Loan-to-income ratio is an indicator of average home loan size vis-à-vis annual income.
larger-home-loan

A borrower in Mumbai has to take a loan that is four times his annual income. But the average loan of a borrower in Bhubaneshwar would be lower at 2.8 times his annual income as of March 2019.

  • The loan burden of Indians has risen 13% since 2015
Home buyers on average have to take a loan that is 3.4 times their annual income to afford a house.
loan-burden

The biggest jumps are seen in Chandigarh, Hyderabad and Ahmedabad, where home prices have risen faster than the rise in incomes. Borrowers in these cities have to take bigger loans compared to their incomes.

Note: Cities where the growth rate exceeds the national average (13%) are taken into account.
Source: RBI's Residential Price Monitoring Survey, March 2019.

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