Most real estate markets in the country have witnessed a decline in affordability due to the recent rise in home loan rates. The two consecutive repo rate hikes for a cumulative 90 bps by the RBI, have decreased home purchase affordability on an average by 2 percent across markets and increased the EMI load by 6.97 percent, according to the Knight Frank Affordability Index.
Ahmedabad is the most affordable housing market amongst the top eight cities, with a ratio of 22 percent, followed by Pune and Chennai at 26 percent each in the first half of the calendar year 2022, according to the affordability index.
The Affordability Index tracks the EMI (Equated Monthly Instalment) to income ratio for an average household. Also See: Cities that command the highest rental yield
It had seen a steady improvement from 2010 to 2021 across the eight leading cities of India, especially during the pandemic when the Reserve Bank of India (RBI) cut REPO rates to decadal lows.
Ahmedabad has consistently been the most affordable city in India since 2019. From 46 percent in 2010, the home purchase affordability index improved to 25 percent in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 24 percent in 2020 and again to 20 percent in 2021. In H1 2022, the affordability index of the city currently stands at 22 percent, the Index showed.
According to the index, Pune and Chennai are the second most affordable residential markets in the country.
From 39 percent in 2010, the home purchase affordability index in Pune improved to 28 percent in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 26 percent in 2020 and again to 24 percent in 2021. In H1 2022, the affordability index of the city currently stands at 26 percent.
From 51 percent in 2010, the home purchase affordability index in Chennai improved to 29 percent in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 26 percent in 2020 and again to 25 percent in 2021. In H1 2022, the affordability index of the city currently stands at 26 percent.
Mumbai remains the most expensive residential market in the country. From 93 percent in 2010, the home purchase affordability index improved to 66 percent in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 61 percent in 2020 and again to 53 percent in 2021. In H1 2022, the affordability index of the city currently stands at 56 percent.
Hyderabad is the second most expensive residential market in the country. From 47 percent in 2010, the home purchase affordability index improved to 33 percent in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 31 percent in 2020 and again to 29 percent in 2021. In H1 2022, the affordability index of the city currently stands at 31 percent.
NCR ranks third in terms of most expensive residential market in the country during H1 2022. The city’s affordability index has been fluctuating year on year. From 53 percent in 2010, the home purchase affordability index improved to 34 percent in 2019. With the advent of the pandemic in early 2020, the affordability index rolled back to 38 percent in 2020 but improved to 28 percent in 2021. In H1 2022, the affordability index of the city currently stands at 30 percent.
Bengaluru follows NCR in terms of expensive residential markets in the country, ranking as 4th expensive city in India. From 48 percent in 2010, the home purchase affordability index improved to 32 percent in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 28 percent in 2020 and again to 26 percent in 2021. In H1 2022, the affordability index of the city currently stands at 28 percent.
“The home affordability, due to the rise in home loan rates by 90 BPS, has worsened in the last couple of months. On an average affordability has decreased by 200 – 300 basis points across the major markets,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
However, despite the hike in the rates, markets remain largely affordable. This, coupled with the positive change in sentiments towards home ownership, we expect demand to remain unhindered with the momentum backed by the latent demand in the market continuing. Further, factors like a strong economic growth outlook, financial stability and job security, the purchasing capabilities of potential buyers are expected to remain intact, he said.
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