It Will Take 32 Years Of Your Income To Buy A House In Mumbai

While affordable is the recurring term one come across while reading reports on India's real estate these days, numbers present a different picture. Data available with market research company Numbeo show that the price-to-income ratio stands at 31.58 years. This means it will take you roughly 32 years of income if you are keen on buying a home in Mumbai, the tinsel town. Ideally, it shouldn't take more than four years of your annual income to own a home.

Is it any different elsewhere?

Mumbai is not alone. Other cities are equally expensive. In Thane, the price-to-income ratio stands at 21.26. In Delhi, it stands at 15.07 and in Mysore it is 14.99. While the ratio is 13.28 in Kolkata, it is 13.2 in Navi Mumbai.

The ratio is 11.92 in Chennai, 10.48 in Goa, 9.93 in Lucknow, 9.92 in Vishakhapatnam, 9.3 in Bhubaneshwar, 9.24 in Kochi, 8.47 in Pune, 8.13 in Ahmedabad, 7.96 in Bengaluru, 7.2 in Gurgaon, 7.17 in Hyderabad, 7 in Surat and 6.37 in Noida.

In calculating the above, the median apartment size is taken to be 90 square meters (969 sqft) in all cities.

Also read: Looking For RERA-Compliant Projects In Mumbai? Consider Thane & Western Suburbs

How to understand this?

These calculations show Mumbai is among the costliest cities globally, closely following expensive property rates in cities such as Shenzhen, Hong Kong, Beijing and Shanghai. Let us break it down further.

Data available with PropTiger.com show it takes Rs 1.03 crore to own a 2BHK in Mumbai, on an average. However, this does not mean homebuyers' spirits have dampened. Across Mumbai, 1,000 projects will be launched soon, over 60 have newly been launched, over 2,500 are under construction and over 9,000 projects in the secondary market.

Also, most developers are trying to size and re-size their product so that it could be as affordable as possible. This means a 3BHK in Noida would not be the same as a 3BHK in Mumbai.

For example, a 3BHK in Mumbai's Badlapur priced at Rs 23 lakh would be only 487 sqft (carpet area). Most are within 600 sqft. Where the prices are higher, a 3BHK is still below 1,100 sqft unless the unit is a luxury class. In Noida, where land bank is still available, end-users have the benefit of more space. As property is more affordable, it would take a little over six years annual income to own a house in the Noida micro-market. Also, in Noida, a 2BHK on an average will cost you only Rs 41 lakh. It clearly indicates the gap between pricing in the two cities.

Check out average capital values of 2BHK and 3BHK units in these Indian cities.

Source: PropTiger.com

Note: Data take into consideration prices in terms of availability. For example, Delhi's property market is saturated and average values as provided in the table may be applicable for only those areas where the land bank is available but infrastructure may or may not be developed.  

Return on investment

According to Jyoti Prakash Gadia, managing director, Resurgent India, “Indians are conservative and want to invest in assets that can be touched and felt.”

Therefore, even when you take the return on investment (ROI), that is rental income against the cost of the home, India ranks 79^th in terms of such yield out of 90 countries. In countries such as the United States of America, the yield is 11.07 per cent, followed by the United Arab Emirates at 10.30 per cent and South Africa at 9.77 per cent. In India, the yield is rather dismal, at 3.14 per cent only. For example, for every Rs 100 put into real estate, rental value received is Rs 3 only on an average. However, real estate remains an attractive asset class.

Also read: Planning To Buy Property In Mumbai? This Concerns You

Why does real estate appeal?

When one looks at the estimate average return in India from different sectors, the five-year Compound Annual Growth Rate (CAGR) stood at 10.90 per cent for Sensex, 1.20 per cent for gold, 4.30 per cent for real estate and 6.50 per cent for fixed deposits. When you look at the 10-year CAGR, Sensex yields stoold at nine per cent, gold gave 10.70 per cent, real estate 7.80 per cent and fixed deposits 5.60 per cent.

However, in a 15-year period, real estate could yield as much as 15 per cent, past records show. This is precisely why Indians loved real estate. The slump in the past few quarters may have done some damage, but investros are still upbeat about real estate. Houses are not only an asset for Indians, they are also a security and will remain so.

How dearly Indians love real estate

• Data available with the Reserve Bank of India (RBI) show that Indians put a lot more in real estate than their global peers. On an average, Indians invest 30 per cent of their total assets in real estate while the global average is 20 per cent.

• When you look at the fixed income of Indians, it is just two per cent, while the global average is 15.70 per cent.

• Indians put only two per cent of their money into equities while the global average is 26.10 per cent.

• Indians also hold 18 per cent as cash or cash deposits and the global average is 28.20 per cent.

• Indians do pretty well in investing in alternative channels (gold, etc.) where 48 per cent of their wealth is. The global average is 10.10 per cent.

The numbers show that there is a lot of investment in land even though cash in hand may be low.