Owing to the 50BPS rise in REPO rates leading to rise in median loan rates, Indian realty markets have seen a decline in affordability, points the Affordability Index study for Q3 2022 by Knight Frank India. According to the nine-month assessment (9M CY 2022) of the affordability index that tracks EMI to income ratio for an average household, Ahmedabad with a ratio of 22% continued to be the most affordable housing market amongst the top eight Indian cities, followed by Pune at 26% and Chennai at 27%.The 0.95% cumulative increase in median home loan rate is expected to impact the affordability of homebuyers and indirectly their purchase decisions.
Knight Frank’s Affordability Index saw a steady improvement from 2010 to 2021 across the eight leading Indian cities of India especially during the pandemic when the Reserve Bank of India (RBI) cut REPO rates to a 10 year lows. However, with fourth consecutive REPO rate hikes, the cumulative 50 bps rate hikes by RBI has decreased home purchase affordability on an average by 2% across markets and increased EMI load by 7.4%.
EMI to loan value ratio change
| 2021 | Q3 2022 | Change | |
| Loan Value | 10,00,000 | 10,00,000 | |
| Rate of interest %pa | 7.30% | 8.25% | 0.95% |
| Tenure in years | 20 | 20 | |
| EMI | 7,934 | 8,521 | 7.4% |
Affordability Index of leading eight cities of India
| City | EMI to Income Ratio | |||||
| 2010 | 2014 | 2019 | 2020 | 2021 | Q3 2022 | |
| Mumbai | 93% | 97% | 66% | 53% | 53% | 57% |
| Hyderabad | 53% | 42% | 33% | 28% | 29% | 31% |
| NCR | 48% | 57% | 34% | 26% | 28% | 30% |
| Bengaluru | 39% | 52% | 32% | 24% | 26% | 28% |
| Kolkata | 51% | 48% | 31% | 25% | 25% | 27% |
| Chennai | 47% | 47% | 29% | 29% | 25% | 27% |
| Pune | 45% | 43% | 28% | 25% | 24% | 26% |
| Ahmedabad | 46% | 40% | 25% | 20% | 20% | 22% |
Source: Knight Frank Research
Note: 1. For Q3 2022, Affordability and income levels are calculated keeping all variables constant, except for the interest rate.
Note: 2. City-wide average affordability statistics cannot highlight disparities in housing costs within sub-markets or across the income spectrum
Shishir Baijal, chairman and managing director, Knight Frank India said, “The home affordability, due to the rise in median loan rates has worsened in 2022. On September 30, 2022, RBI increased the repo rate by 50 bps taking the cumulative hike to 190 bps in 2022. Affordability has worsened by 2% points across cities since the rate cycle changed. The 0.95% cumulative increase in median home loan rate will impact affordability of homebuyers and thus their purchase decisions as well. However, with the need for homeownership still being strong, homebuyers will largely make necessary compromises by considering lower priced housing units rather than deferring their purchases as expectations of further price increases will discourage deferment.”
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Affordability Index city wise spread
Mumbai
Mumbai remains the most expensive residential market in the country. From 97% in 2010, the home purchase affordability index registered a significant improvement to 53% in 2020. Mumbai is the only city that witnessed the affordability index improving at the rate of 4% from 53% in 2021 to 57% in Q3 2022. This still remains very much optimistic in regards to the pre-pandemic levels of 66% in 2019.
Hyderabad
Hyderabad is the second most expensive residential market in India. From 53% in 2010, the home purchase affordability index improved to 33% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 29% in 2021. In Q3 2022, the affordability index of the city currently stands at 31%.
NCR
NCR is the third most expensive residential market in India during Q3 2022. The city’s affordability index has been fluctuating year on year. From 48% in 2010, the home purchase affordability index improved to 34% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 26% in 2020 but declined to 28% in 2021. In Q3 2022, the affordability index of the city currently stands at 30%.
Bengaluru
Bengaluru is the fourth most expensive residential market in India. From 39% in 2010, the home purchase affordability index improved to 32% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 24% in 2020 and again to 26% in 2021. In Q3 2022, the affordability index of the city currently stands at 28%.
Kolkata
Kolkata ranks fourth most affordable residential market in the country. From 51% in 2010, the home purchase affordability index improved to 31% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 25% in 2021. In Q3 2022, the affordability index of the city currently stands at 27%.
Chennai
Chennai remains the third most affordable residential market in India. From 47% in 2010, the home purchase affordability index improved to 29% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 25% in 2021. In Q3 2022, the affordability index of the city currently stands at 27%.
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Pune
Pune maintains its position as the second most affordable residential market in India. From 45% in 2010, the home purchase affordability index improved to 28% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 25% in 2020 and then to 24% in 2021. In Q3 2022, the affordability index of the city currently stands at 26%.
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Ahmedabad
Ahmedabad has consistently been the most affordable city in India since 2019. From 46% in 2010, the home purchase affordability index improved to 25% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 20% in 2021. In Q3 2022, the affordability index of the city currently stands at 22%.
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With 16+ years of experience in various sectors, of which more than ten years in real estate, Anuradha Ramamirtham excels in tracking property trends and simplifying housing-related topics such as Rera, housing lottery, etc. Her diverse background includes roles at Times Property, Tech Target India, Indiantelevision.com and ITNation. Anuradha holds a PG Diploma degree in Journalism from KC College and has done BSc (IT) from SIES. In her leisure time, she enjoys singing and travelling.
Email: anuradha.ramamirtham@housing.com
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