An Explainer: Price-to-Income Ratio

Price-to-income ratio is the ratio between the price of a median home to that of the median annual household income in a particular area.

PropGuide Explains Price-to-Income Ratio

The concept of price-to-income ratio is used to measure the affordability of homes in a certain area. When banks and financial institutions extent home loans, they consider the price-to-income ratio to assess how affordable it is to the home loan seeker. The price-to-income ratio is generally known as attainability. It is especially used to measure the long-term affordability of homes in a region.

The price-to-income ratio is also a good parameter to judge the current affordability of homes in a region relative to how affordable it historically was. If the price-to-income ratio is going up, it means that homes are becoming less affordable. If the price-to-income ratio is declining, it means that homes are becoming more affordable.

According to Global Property Guide, in 2014, India's home price-to-income ratio was 758.61, when Indian income levels relative to a 100 sq mt upscale residence. This is exceptionally high, by global standards. In Singapore, the home price-to-income ratio in 2014 was 27.64 and in Malaysia it was 27.47.

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