Advertisement
X

Editor’s Note: Why The Middle Class Can No longer Afford A House

The government needs to step in and rethink the entire real estate and infrastructure landscape. For instance, creating more job opportunities in smaller cities will not force people to come to metros, where there’s dearth of space and prices are sky high

Home ownership has always been Indians’ dream, but it was the advent of cheaper home loan options post liberalisation that brought it within the grasp of the middle class. The pace increased in the 2000s with floating interest rates being introduced and several banks jumping in the race. The result? While the earlier generation, especially the middle class, waited to deploy their retirement corpus to buy a house, the Gen X and millennials were able to own a home during their working lives.

Advertisement

But can the middle class still afford to buy a house? Our calculations say otherwise. First, let’s understand what is affordable these days and who constitutes the middle class. According to our research, private developers are pegging affordable housing between Rs 50 lakh and Rs 1 crore, and that too in fringe areas, especially in metro cities. Note that most government housing is meant for low- to mid-income households, so we are not considering that here. According to the ICE 360-Degree Household Survey 2021 by People Research on India’s Consumer Economy (PRICE), the middle class in India earns between Rs 5 lakh and Rs 30 lakh annually. There has been much debate on redefining who constitutes the middle class in India, but can anyone earning in this range afford to buy a house? Let’s explore.

If we take the highest salary of Rs 30 lakh per annum (for the middle class), the monthly salary will be Rs 2.5 lakh. The in-hand salary will get reduced by taxes and other deductions like Employees’ Provident Fund (EPF) and gratuity to, say, Rs 2 lakh. Typically, it is someone in their late 30s or 40s who will be earning that much. This person will have a family to take care of and will need a moderately spacious house. Let’s say, this individual moves to the outskirts of a metro to buy a house worth Rs 75 lakh (the mid-point of affordable housing estimates) that has decent space.

Advertisement

Considering a 10 per cent downpayment, the loan amount will be Rs 67.5 lakh. At an interest rate of 8-10 per cent, the EMI will roughly come to around Rs 60,000. Let’s look at other expenses to find out if that EMI is really affordable.

Any individual should save at least 30 per cent of the income for goals, such as children’s education and retirement. There goes Rs 60,000. Add to it at least Rs 50,000 monthly expenses, including the cost of groceries, helps, utilities, pocket money for children, and so on. Then there is children’s school fees—another Rs 10,000 or so. Now that the individual has moved to a far-off place, the cost of the commute will also go up, let’s say, to Rs 10,000.

The individual will end up spending Rs 1.90 lakh and will be left with Rs 10,000 each month. Now consider the claimants for that Rs 10,000—clothes and accessories, any form of family entertainment, repairs or damages, property tax, maybe higher school fees or higher cost of commute, medical cost for the family, money to be sent to ageing parents, and so on. Does that answer the question whether the middle class can afford a house anymore?

Advertisement

What’s the way out? None, as of now, unless the government steps in and rethinks the entire real estate and infrastructure landscape. For instance, creating more job opportunities in non-metro cities will not force people to come to metros like Delhi and Mumbai, where there’s dearth of space and prices are sky high. Schemes targeted at not just the low-to-mid-income segment, but also at the middle class, may also help.

Show comments