\n\n City<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Weighted Average Price of a Flat<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Per Capita Income<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Years<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Inventory<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Mumbai Metropolitan Region<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.34 crore<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.97 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 68 years<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 50 months<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n National Capital Region<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 75 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 2.31 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 32.5 years<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 83 months<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Bangalore<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 88 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.08 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 81.5 years<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 41 months<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Pune<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 58 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.83 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 31.7 years<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 23 months<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Hyderabad<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 75 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.46 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 51.4 years<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 38 months<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nSource: Liases Foras and state government documents<\/p>\nWhat this table clearly tells us is that Indians are not buying homes to live in primarily because homes are priced way beyond what is affordable. This becomes clear at the massive inventory numbers being reported (as can be seen from the table). \u201cMonths inventory denotes the months required to clear the stock at the existing absorption pace. A healthy market maintains 8 months of inventory,\u201d points out Liases Foras, a real estate rating and research firm in a report. \nThe following table shows very clearly that the months inventory across major cities is way over the healthy level of eight months and high price is the only possible explanation for it.\u00a0<\/span><\/span><\/span><\/p>\n \n\n\n\n <\/colgroup>\n\n\n\n City<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Inventory<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Number of times healthy inventory of 8 months<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Mumbai Metropolitan Region<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 50 months<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 6.25<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n National Capital Region<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 83 months<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 10.375<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Bangalore<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 41 months<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 5.125<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Pune<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 23 months<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 2.875<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Hyderabad<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 38 months<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 4.75<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nOne criticism of this piece of analysis which I can immediately see coming is that the average income of a city hides all kinds of variations. So, for a city like Mumbai it would also take into account the incomes of people who live in slums. And these people should not be considered because they cannot afford the flats being built. The point is that no one stays in a slum by choice. People stay in a slum because they cannot afford proper housing. Another point that I would like to make here is that when such analysis is carried out in developed countries they consider the ratio of weighted average price of a home and disposable income. I had to make do with average income primarily because I could not find any disposable income data for Indian cities (I would be grateful to anyone who could lead me to such data, if it exists). Nevertheless we can make an assumption that around 40% of income is disposable income (I guess that is on the higher side, but let’s just go with it and see how the numbers work out. Also, I am leaving Bangalore out of the calculation for reasons already explained). The following table shows how crazy the situation actually is.\u00a0<\/span><\/span><\/span><\/p>\n\n\n\n\n\n\n <\/colgroup>\n\n\n\n City<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Weighted Average Price of a Flat<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Per Capita Income<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Disposable Income<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n | \n Years<\/b><\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Mumbai Metropolitan Region<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.34 crore<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.97 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 78,800<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 170<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n National Capital Region<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 75 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 2.31 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 92,400<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 81.2<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Pune<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 58 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.83 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 73,200<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 79.2<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n\n\n Hyderabad<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 75 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 1.46 lakh<\/span><\/span><\/span><\/p>\n<\/td>\n | \n Rs 58,400<\/span><\/span><\/span><\/p>\n<\/td>\n | \n 128.4<\/span><\/span><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nAssuming that disposable income is 40% of average income it would take 170 years of disposable income to buy a flat in Mumbai. Hyderabad comes in second at 128.4 years. In fact, <\/span><\/span><\/span>in a recent article in the Business Standard <\/span><\/span><\/span><\/span><\/span><\/a>columnist Bhupesh Bhandari made a similar point when he wrote: \u201cAccording to one study, it will take an Indian with the average per capita income 580 years to buy a top-end property in Mumbai, compared to 65 years in Hong Kong, 62 years in Paris and 47 years in New York.\u201d So, the real estate companies and media reports may keep blaming high interest rates for people not buying homes, but that isn’t really the case. Edelweiss Capital expects the RBI to cut the repo rate by further 100-125 basis points by March 2016. I can say this with confidence that unless real estate prices fall, even with such a massive cut in the repo rate (which is likely to lead to lower home loan rates) home sales won’t pick up. I can also say with confidence that the real estate companies will continue blaming the RBI. But RBI clearly does not have a solution to this problem.<\/span><\/span><\/span><\/p>\nThe column originally appeared on www.equitymaster.com as a part of The Daily Reckoning<\/a>\u00a0on Jan 19, 2015<\/span><\/span><\/span><\/p>\n\n","protected":false},"excerpt":{"rendered":" Vivek Kaul Raghuram Rajan took over as the governor of the Reserve Bank of India (RBI) in September 2013. Since then, real estate companies and associations that represent these companies have been asking (i.e. putting it politely) for a repo rate cut. The repo rate is the interest rate at which RBI lends to banks … <\/p>\n Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2,30,65],"tags":[2101,2908,3054],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Analysis<\/a> Equitymaster<\/a> RBI<\/a>","qubely_excerpt":"Vivek Kaul Raghuram Rajan took over as the governor of the Reserve Bank of India (RBI) in September 2013. Since then, real estate companies and associations that represent these companies have been asking (i.e. putting it politely) for a repo rate cut. The repo rate is the interest rate at which RBI lends to banks…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/3216"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=3216"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/3216\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=3216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=3216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=3216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}} | | | | | | | | | | | | | | | | |