High home loan rates have significantly impacted the affordability of residential properties in eight major Indian cities during the first half of 2023. Among these, Mumbai stands out as the least affordable home market, with an EMI-to-income ratio of 55 percent. This data emerges from the affordability index report released by Knight Frank India, which identifies Ahmedabad, Pune, and Kolkata as the most affordable housing markets.
According to the report, Ahmedabad maintains its reputation as the most affordable city for housing, with an EMI (Equated Monthly Instalment)-to-Income Ratio of just 23 percent. In stark contrast, Mumbai’s EMI-to-income ratio of 55 percent underscores its position as the most unaffordable market among the top eight cities.
Knight Frank, a prominent real estate consultancy firm, recently published its ‘Affordability Index’ for the first half of 2023. This index encompasses Mumbai, Delhi-NCR, Bengaluru, Chennai, Kolkata, Pune, Ahmedabad, and Hyderabad.
The Affordability Index is a vital metric that reflects the proportion of income a household needs to cover the EMI of a housing unit in a specific city. For example, an Affordability Index of 40 percent implies that households in that city must allocate 40 percent of their income to cover the housing loan EMI. Ratios exceeding 50 percent are generally deemed unaffordable, leading banks to exercise caution when underwriting mortgages. The affordability index ranks Ahmedabad, Pune, and Kolkata as the top three cities with an EMI-to-Income Ratio of 26 percent each. Bengaluru and Chennai follow closely at 28 percent, while the National Capital Region (NCR) records 30 percent, and Hyderabad reports 31 percent.
The affordability index data reveals that elevated home loan rates have eroded affordability across all markets in 2023.
Knight Frank’s report highlights a consistent trend of improved affordability from 2010 to 2021 across the eight Indian cities. This trend was particularly notable during the pandemic when the Reserve Bank of India (RBI) reduced repo rates to their lowest levels in a decade. However, post-2021, the RBI implemented a 250 basis points (bps) increase in the repo rate in response to rising inflation. Consequently, affordability was affected, decreasing by an average of 2.5 percent across these cities, resulting in a 14.4 percent rise in the EMI burden.
Shishir Baijal, Chairman and Managing Director of Knight Frank India, emphasized that while the mid and premium segments of the residential market have consistently outperformed expectations, the 250 bps policy rate hike has caused a 2.5 percent average reduction in affordability across markets. Despite the market’s current strength, further increases in interest rates could potentially exert pressure on homebuyer capacity and sentiments.
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