December 27, 2024: Knight Frank India’s Affordability Index shows that home affordability stayed steady in 2024, aided by stable interest rates since 2023. According to the Index, Ahmedabad is the most affordable housing market among the top eight cities, with an affordability ratio of 20%, followed by Pune at 23% and Kolkata at 24%. Mumbai was the only city to exceed the affordability threshold, standing marginally higher at 50%, albeit affordability has improved. Knight Frank India’s Affordability Index tracks the average household’s EMI (Equated Monthly Instalment) to income ratio. Home affordability witnessed steady improvement from 2010 to 2021 across the eight leading cities of India, especially during the pandemic when the Reserve Bank of India (RBI) reduced the policy repo rate (REPO) to decadal lows. However, the RBI raised the REPO rate by 250 basis points (bps) over nine months starting May 2022 to tackle high inflation, thus affecting affordability across cities in 2022.
Since February 2023, however, the REPO rate has remained unchanged, while income has seen healthy growth, which has helped offset rising home prices and relatively high interest rates, supporting affordability. Housing demand has grown by 23% annually since 2020 and is projected to continue this upward trend in 2024. The stable interest rate scenario is expected to continue, supported by India’s projected GDP growth.
Affordability Index of leading eight cities of India
| City | EMI to Income Ratio | ||||||
| 2010 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
| Mumbai | 93% | 67% | 61% | 52% | 53% | 51% | 50% |
| NCR | 53% | 34% | 38% | 28% | 29% | 27% | 27% |
| Bengaluru | 48% | 32% | 28% | 26% | 27% | 26% | 27% |
| Pune | 39% | 29% | 26% | 24% | 25% | 24% | 23% |
| Chennai | 51% | 30% | 26% | 24% | 27% | 25% | 25% |
| Hyderabad | 47% | 34% | 31% | 28% | 30% | 30% | 30% |
| Kolkata | 45% | 32% | 30% | 25% | 25% | 24% | 24% |
| Ahmedabad | 46% | 25% | 24% | 20% | 22% | 21% | 20% |
Source: Knight Frank Research. Note: For H1 2024, affordability and income levels are calculated keeping all variables constant, except for the interest rate.
Note: The Knight Frank Affordability Index indicates the proportion of income that a household requires, to fund the monthly instalment (EMI) of a housing unit in a particular city. So, a Knight Frank Affordability index level of 40% for a city implies that on an average, households in that city need to spend 40% of their income to fund the EMI of housing loan for that unit. An EMI/ Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage.
Assumptions:
-
- EMI, housing unit size and price/ sq ft represent city-level averages.
- EMI:
- Loan Tenure – 20 years
- Loan to Value – 80%
- Home loan interest rate – Average home loan rate
- Area of housing unit: House size is fixed for each city across the years but varies within different cities taking into account the average size preference for each city.
- Housing Price: Median housing price for that city
EMI to household income chart
Source: Knight Frank Research
Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “Affordability is key to sustaining homebuyer demand and driving sales, contributing to economic growth. Rising incomes have offset property price increases, enabling financial confidence for investments. With the RBI projecting 6.6% GDP growth for FY 2025 and stable interest rates, affordability will likely support demand in 2025.”
The COVID-19 pandemic became a catalyst for the residential real estate market, triggering a recalibration of both property prices and lending rates that significantly boosted demand. This residential sales momentum has persisted, supported by factors such as effective inflation control, and strong economic growth and changing preference for home ownership. All markets have shown improved or stable affordability, leading to sustained demand for homes. The pandemic influenced a shift in homebuyer preferences, contributing to consistent demand.
In Mumbai, the affordability index improved by 17 percentage points, moving from 67% in 2019 to 50% in 2024. Affordability has reduced in Bengaluru, albeit marginally, compared to last year with households now expected to pay 27% of towards home purchases up from 26% in 2023. This is largely due to the sharp rise in residential prices over the past year, which has put pressure on affordability. While affordability has come down marginally, it is still well within the affordability threshold of 50%, over which a city’s residential market is deemed unaffordable. The enduring shift in homebuyers’ preferences and sentiments since the pandemic has kept demand resilient and the residential market buoyant.
Housing loan interest rate chart
Source: Knight Frank Research
