‘Property rates becoming unaffordable for average buyer’
Ashok Shaw 02 September 2010

High property value and interest rates, coupled with a lower loan- to-value ratio are becoming serious obstacles for average home buyers, says researcher

An average working class person intending to buy a house will find it almost impossible today, as high interest rates and property values, coupled with low conduciveness of the loan-to-value (LTV) ratio, will make him "ineligible" for the purchase. The LTV ratio indicates how much of a property can be financed through a loan.

Pankaj Kapoor, founder and managing director, Liases Foras, a real estate research firm, says: "He (the average buyer) cannot purchase a property today as the LTV ratio is not very conducive. A consumer is most eligible for a purchase when the banks give 80% to 85% of the property value as loan, as he can manage the rest 15% to 20% from his own sources. However, if he has to pay 30% or 40% of the property value from his own pocket it turns out to be a huge burden. Besides, the property prices have also gone up, making it completely unaffordable for the average buyer."

Mr Kapoor also explained how the high property values deterred consumers from making a purchase of a property in Mumbai. He said the average cost of flats in the Greater Mumbai area of Colaba to Mulund and Borivli, is about Rs1.97 crore and if you ask an average customer to pay about 40%, or Rs80 lakh, then he has no option other than to cancel his purchase as it is unaffordable for him. "The average consumer does not have that kind of money. He may aspire to buy a property, but he will not be able to exercise this purchase today," Mr Kapoor said.

Interest rate is another roadblock that makes a home purchase difficult for a common person. Although some financial institutions offer interest rates of 8% and 8.5%, some customers find themselves ineligible for these schematic loans and move to other institutions where they are charged higher interest. "To expect 8% and 8.5% interest rate on home loans is too much. No one is offering that because the inflation rate is moving at that level," Mr Kapoor said.

A survey conducted by ICICI Securities recently has also found that property prices have become unaffordable. According to the survey in which 3,839 ICICI Direct customers participated, 72% of the respondents believed that property prices were unaffordable and 79% perceived property prices to be high. However, a significant section of the respondents indicated that while affordability was a concern, it was manageable. The survey showed that 48% of the buyers were interested in buying at the current prices or were keen to see a marginal correction. The survey was conducted during June-July this year.

The survey found a larger percentage of respondents in Mumbai and Pune who felt that home prices were too high, as compared to Hyderabad and Kolkata where a lower proportion of the respondents had a similar perception.

pinakin mamtora
1 decade ago
Wish to add one point to what I wrote 3 days back (see below): The Government has been and will continue to choose not to use the vast treasure of the domain-knowledge and impeccable integrity of Mr.Deepak Parekh to make housing affordable. Why? It is waiting for a realty-scam (of the UTI and Satyam scale) to happen so that it can then call in Mr.Deepak Parekh for fire-fighting!!!
Sam Kark
1 decade ago
I agree with Davesh Bansal. However, it is better to invest in property than to keep black money in Swiss banks by the politicians businessman. Most of the NRI's invest in property for the their future by bringing to India huge amount of foreign exchange. So govt. must see all the pros and cons.
1 decade ago
Property prices are slave of black money floating in the economy. it is not the demand and supply of property but the black money which find no other avenue to be kept other than real esate. it will be better that government bring one last time amnesty scheme to curb the menance.
pinakin mamtora
1 decade ago
It is hard to envisage property prices coming down to affordable levels in India - the politicians, the bureaucracy and the land-owners and builders have humungously huge money at stake to allow that to happen in reality. No matter what is being said by all/any of them in the media, the lure of astronomical profits is what blinds them all. Practical wisdom of truly credible experts like Mr.Deepak Parekh is being completely ignored by these suckers. I wonder whether they are re-born as mosquitoes who spread malaria/dengue and other killer diseases!! The habit of harassing others for self-gratification is so deeply programmed in the psyche of the powers-that-be that it gets carried forward from one birth to the next!!
Now you know why sucking-based diseases are spreading so bountifully in India?
K Narayanan
1 decade ago
The sole reason for the same is govt alllowing investment by FIIs in real estate companies under QIP route and pubic issue.The real estate cos issued the shares at a huge premium -Rs 5 FV share sold for Rs500 or so. and with the huge money these cos bought lakhs of acres at a hefty price causing the land prices to zoom 3to 4 times in 3 or 4 years.
Amalaraj Marian
1 decade ago
It is absolutely correct that the prices seem to have run-up quite a bit in the unaffordable zone. considering the fact that even if the average buyer would still want to buy a property for personal use, buy v/s rent analysis will tilt the scales towards rental as coughing up such a huge upfront is next to impossible. similarly the ability to leverage a large loan has also evaporated.
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