Kolkata beats Hyderabad to become most affordable market for home purchase

Kolkata has emerged as the most affordable market this year for home purchase among India's seven major cities, according to property consultant JLL India.

As per JLL's annual Home Purchase Affordability Index (HPAI), the affordability has improved in 2020 across all seven major cities despite a fall in average household income. The consultant attributed this to decline in both housing prices as well as interest rates on home loans.

HPAI -- the ratio of the average household income to the eligible household income -- of Kolkata is highest at 203, followed by Hyderabad at 195, Pune 188, Chennai 178, Bengaluru 175, Delhi-NCR 136 and Mumbai 95 during this calendar year.

"HPAI until 2019 indicates that Hyderabad had been the most affordable residential market. In 2020, Kolkata has overtaken Hyderabad to become the best market in terms of home purchase affordability," the report said.

Eligible household income is defined as the minimum income that a household should earn to qualify for a home loan on a 1,000 sq ft flat at the prevailing market price.

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

According to the report, Mumbai is moving towards the affordability threshold.

"In 2020, Mumbai continues to be the only market below the affordability threshold of 100," it said.

However, the consultant said Mumbai is the fastest moving city, showing a significant improvement in HPAI from 47 in 2011 to 95 in 2020.

"Our analysis suggests that despite a fall in household income in 2020, home purchase affordability has increased in 2020 across all the markets under consideration,” said Ramesh Nair, CEO and Country Head, JLL India.

He projected home purchase affordability to either remain at similar levels or improve during 2021. Nair noted that the broader recovery of the housing market would depend largely upon the economic environment and the prevailing consumer sentiments.

JLL said that property values in a majority of India's prime residential markets have been stagnant over the past few years, forcing most of the developers to work on very low margins.

On the other hand, household incomes have witnessed steady growth. The growth in household income has been consistently higher than the growth in house prices since 2011.

However, the consultant said the current year has been an exception.

Few developers in certain markets are providing moderate price discounts to facilitate cash flows in the short run. They are offering various freebies such as no EMIs for a year, no stamp duty etc. to attract prospective homebuyers.

This has resulted in a marginal dip in housing prices in certain markets. While prices remained stagnant in the southern cities of Bengaluru and Hyderabad, the other markets under review witnessed a dip of 1-3 per cent in effective prices.

"At the same time, an unprecedented rise in unemployment, coupled with salary cuts during the year led to incomes decreasing (4-7 per cent dip) by a greater proportion in all the markets," the report said.