House Price to Income Ratio (HPIR) for Affordable Housing – The Indian Context - Simplified

What is Housing Price to Income Ratio (HPIR) in the Indian context?It is the amount that can be spent by an individual or a household on purchase of new property (mainly house/residence) with the annual savings post taxes. For simple calculations it is assumed is that a. 10% of the income goes to the EMI of the new property b. 10% of the income goes to the rental of the existing accommodation. This makes a total of 20% of income devoted to accommodation/property for the purpose of residence. This is calculated over the next 20 years on the current income. However there are many situations wherein there is no need to pay rental as the householders have been staying at their parents accommodations (India has a large number of households in Shared or Joint Family systems)Normal Bank Loans are available for a maximum of 20 years period.Which means that 20 years x 10% of annual income = 2 times the current annual income is the affordable range for any individual or household. Say 2x. This is approximately 2 years of gross income of the individual or household. This is called the HPIR (House Price to Income Ratio)However the net savings or disposable income will vary from income segment to income segment. It actually reduces as we go down the income category ladder. This is why the need for such a paper arises to classify the HPIR into various income groups.The time period of 20 years is normally taken for the households which have very less savings. Households & individuals who have higher savings can easily reduce this time period.1. The initial salary or savings or income decides the cost of housing.2. The purchase price of housing increases, in fact sometimes, much more than the standard increase in wages