High home loan rates have impacted the affordability of residential properties across eight major Indian cities in the first half of 2023 as Ahmedabad remained the most affordable housing market followed by Pune and Kolkata, according to the affordability index report of Knight Frank India.
It said Ahmedabad had the most affordable residential properties with EMI (Equated Monthly Instalment)-to-Income Ratio standing at 23 percent whereas Mumbai was the unaffordable home market among the top eight cities with an EMI-to-income ratio of 55 percent.
The real estate consultant released its 'Affordability Index' for the top eight cities, which include Mumbai, Delhi-NCR, Bengaluru, Chennai, Kolkata, Pune, Ahmedabad and Hyderabad, for the first half of 2023 calendar year.
Affordability Index indicates the proportion of income that a household requires to fund the EMI of a housing unit in a particular city. So, a Knight Frank Affordability index level of 40 percent for a city implies that on average, households in that city need to spend 40 percent of their income to fund the EMI of housing loan for that unit. An EMI-to-Income ratio of over 50 percent is considered unaffordable as beyond it banks rarely underwrite a mortgage, the consultant said.
As per the affordability index, Ahmedabad was the most affordable housing market followed by Pune and Kolkata having an EMI-to-income ratio of 26 percent each. The EMI-to-income ratio for Bengaluru and Chennai stood at 28 per cent each, for National Capital Region (NCR) at 30 percent and for Hyderabad at 31 percent.
Reducing home affordability
The index showed that higher home loan rates have reduced affordability across all markets so far in 2023.
Knight Frank observed that the affordability index witnessed steady improvement from 2010 to 2021 across the eight Indian cities, especially during the pandemic when the RBI cut repo rates to decadal lows.
Also Read: Fall in demand for affordable homes pushes Mumbai sales down by 8%: Knight Frank report
After 2021, the RBI raised the repo rate by 250 bps to address growing inflation. This has impacted affordability by an average of 2.5 percent across cities and increased the EMI load by 14.4 percent since then, the report said.
Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “The mid and premium segments in the residential market have been consistently outperforming and point to a significant shift in the market’s underlying fabric. However, the 250 bps increase in policy rates has reduced affordability across markets by 2.5 percent on average. And, while the market has remained strong thus far, further interest rate increases could put pressure on homebuyer ability and sentiments.”
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