Global gap between house prices and income estimated to be $740 billion in 2018
Mumbai along with Moscow, Singapore and Paris saw their average real income grow faster than real house prices. India’s financial capital recorded a rise of 20.4 percent in annual household incomes, but the growth in housing prices has been estimated at eight percent only, says a report.
San Francisco saw the highest rise in annual income at 25 percent in the five-year period while Amsterdam, at 63.6 percent, recorded the highest rise in housing prices between 2014-18, states the inaugural issue of Knight Frank’s global report Urban Futures.
The report evaluates 32 cities across the world to understand the difference between home prices and income and estimates the gap to be $740 billion in 2018.
Knight Frank's Global Affordability Monitor analyses affordability across 32 cities. It takes into consideration three key measures – house price-to-income ratio, rent as a proportion of income and real house price growth compared to real income growth.
Across 32 cities, there was an average five-year real house price growth of 24 percent, while average real income grew only eight percent over the same period. Overall, New York saw its income growth exceed real house price growth by three percent. Moscow, Singapore, Mumbai and Paris also saw their average real income over the last five years grow faster than real house prices. Moscow saw the largest difference where real income growth outpaced real house price growth by 22 percent.
| Rank | City | Housing (% growth) | % growth in income |
| 1 | San Francisco | 41.8 | 25.6 |
| 2 | Moscow | 0.1 | 22.7 |
| 3 | Mumbai | 8 | 20.4 |
| 4 | Los Angeles | 25.5 | 15.4 |
| 5 | Singapore | -2.8 | 14.9 |
| 6 | Auckland | 47 | 14.7 |
| 7 | Kuala Lumpur | 21.8 | 13.2 |
| 8 | Dublin | 61.9 | 13.2 |
| 9 | Bangkok | 33.3 | 12.2 |
| 10 | Vancouver | 57.6 | 12 |
Despite being India’s most expensive real estate market, Mumbai emerged as one of the more affordable cities among global peers. Mumbai has seen real household income growth outpace real house price growth by 12.4 percent, indicating an improvement in affordability. Real house prices in comparison have grown at a much slower pace of eight percent, while the real disposable household income growth was over 20.4 percent in the five-year period ending 2018, the report says.
Affordability in Mumbai has improved on account of reduced size of units with largely stable prices. Consistent reduction in apartment sizes has also lowered the average ticket price for Mumbai. It is estimated that on an average, newly launched homes are 25 percent smaller between 2014 and 2018. Maximum launches, especially in the last two years (2017 and 2018), have been in the affordable and mid-range segment with ticket prices below Rs 75 lakh.
"Mumbai’s residential housing shortage has been a reason for concern for most urban development agencies including the government. Similar to other global cities, Mumbai adds many new settlers every year making it a difficult place to find housing. However, in comparison to others, Mumbai is distinctly more affordable," says Shishir Baijal, Chairman and Managing Director, Knight Frank India.
"The general growth in the economy, increased incomes and reduction in property prices have ensured a more balanced housing situation. Mumbai has seen a drop of close to seven percent in the ticket price of new launch in 2018. With the recent announcement on reducing GST on under construction projects, the effective payout by the buyers is expected to reduce up to seven percent,” he adds.
