What makes house purchase in the affordable segment particularly compelling is the narrowing gap between rental yields and effective housing loan interest rates
India ended 2015 as the fastest growing economy in the world, beating China by clocking a GDP growth of 7.3 percent. This is expected to be sustained, if not bettered, and India is likely to be the world’s top-performing economy for the next three years. This speed of growth has triggered a migration towards urban areas, chasing expanding job opportunities in the service and non-agriculture sectors. According to the 2011 census, 31.2 percent of Indians are urban dwellers, up from 27.8 percent in 2001. This pace of urbanisation is expected to pick up and, by 2026, nearly 40 percent of all Indians are expected to be living in urban areas.
The GDP growth will sustain wage inflation, which has averaged between 10.5 percent and 12 percent for the past four years. Growing income levels, increasing urbanisation and fragmentation of the traditional large family structures into smaller nuclear units, along with the already large housing shortfall, will converge to trigger an unprecedented boom in the housing market.
According to a recent report by real estate consultant JLL, residential unit sales in Mumbai have jumped by 28 percent year-on-year. Over the past five years, the housing finance market has compounded at a CAGR of 18 percent. Housing Finance Companies (HFCs), which are specialist non-bank financial companies exclusively focussed on housing and mortgage lending, have grown at a CAGR of 22 percent, expanding their market share to 39 percent, up from 33 percent five years ago.
EFFECTIVE INTEREST RATES ON HOME LOANS
(This story appears in the 05 February, 2016 issue of Forbes India. To visit our Archives, click here.)