- Ahmedabad, Pune and Kolkata are the most affordable markets
- Mumbai is the only city above the affordability threshold
Mumbai, August 07, 2024: Knight Frank India, in its proprietary report, Affordability Index, cited that home affordability has remained stable in H1 2024 (January to June 2024) as interest rates have stayed steady since the end of 2023. According to the Affordability Index, Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 21%, followed by Pune and Kolkata at 24% each. Mumbai was the only city that remained marginally higher than the threshold at 51%.
Knight Frank India’s Affordability Index, which tracks the EMI (Equated Monthly Instalment) to income ratio for an average household, 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) cut policy repo rate (REPO) to decadal lows. The central bank subsequently raised the REPO rate by 250 bps in a space of nine months starting May 2022 to address growing inflation. This impacted affordability across cities in 2022. As the REPO rate has remained steady since February 2023, healthy income growth has helped counteract rising prices and comparatively high interest rates, bringing affordability back to the current levels seen in the table below. Demand has continued to grow since 2023 and has sustained at the multi-year highs in H1 2024. The stable interest rate scenario is expected to sustain in the near term, as economic growth continues to remain on track.
Affordability Index of leading eight cities of India
| City | EMI to Income Ratio | ||||||
| 2010 | 2019 | 2020 | 2021 | 2022 | 2023 | H1 2024 | |
| Mumbai | 93% | 67% | 61% | 52% | 53% | 51% | 51% |
| Hyderabad | 47% | 34% | 31% | 28% | 30% | 30% | 30% |
| NCR | 53% | 34% | 38% | 28% | 29% | 27% | 28% |
| Bengaluru | 48% | 32% | 28% | 26% | 27% | 26% | 26% |
| Chennai | 51% | 30% | 26% | 24% | 27% | 25% | 25% |
| Pune | 39% | 29% | 26% | 24% | 25% | 24% | 24% |
| Kolkata | 45% | 32% | 30% | 25% | 25% | 24% | 24% |
| Ahmedabad | 46% | 25% | 24% | 20% | 22% | 21% | 21% |
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 rates
- 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 “Stable affordability is essential to sustaining homebuyer demand and sales momentum, which, in turn, acts as a key economic driver for the country. As income levels rise and economic growth strengthens, end-users’ financial confidence is significantly bolstered, encouraging them to make longer-term financial commitments toward asset creation. Given the RBI’s healthy 7.2% GDP growth estimate for FY 2025 and a stable interest rate scenario, income and affordability levels are expected to continue to support homebuyer demand in 2024.”
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 market momentum has persisted, supported by strong economic factors such as effective inflation control, and strong economic growth, which has improved home affordability. As a result, H1 2024 has witnessed the highest levels of affordability across major cities when compared to the pre-pandemic year of 2019. All markets have shown improved affordability, leading to sustained demand for homes. In Mumbai, for instance, the affordability index improved by 16 percentage points, moving from 67% in 2019 to 51% in H1 2024. Additionally, the level has been maintained over the past 18 months, thanks to steady policy rates and a controlled rise in property prices. The pandemic has thus instilled an enduring shift in homebuyers’ sentiments, keeping demand buoyant.
City Wise Weighted average price
| City | Weighted Average Price / Sq ft | |||||||||
| 2010 | 2019 | 2020 | 2021 | 2022 | 2023 | H1 2024 | % Change in H1 2024 since 2019 | % Change in H1 2024 since H1 2023 | ||
| Mumbai | 5,659 | 7,014 | 6,787 | 6,885 | 7,367 | 7,883 | 7,900 | 13% | 4% | |
| Bengaluru | 3,238 | 4,977 | 4,935 | 5,150 | 5,511 | 5,900 | 6,163 | 24% | 9% | |
| Hyderabad | 2,728 | 4,500 | 4,509 | 4,720 | 4,984 | 5,550 | 5,681 | 26% | 5% | |
| NCR | 2,780 | 4,432 | 4,257 | 4,203 | 4,490 | 4,759 | 4,835 | 9% | 4% | |
| Pune | 3,481 | 4,242 | 4,017 | 4,000 | 4,293 | 4,507 | 4,580 | 8% | 4% | |
| Chennai | 3,496 | 4,170 | 3,794 | 4,050 | 4,300 | 4,472 | 4,560 | 9% | 5% | |
| Kolkata | 2,719 | 3,359 | 3,213 | 3,215 | 3,351 | 3,589 | 3,648 | 9% | 6% | |
| Ahmedabad | 2,394 | 2,896 | 2,807 | 2,800 | 2,900 | 3,031 | 3,035 | 5% | 1% | |
Source: Knight Frank Research
As sales volumes have been robust, prices have also grown across all markets with Bengaluru growing at 9% YoY and Mumbai, NCR and Pune growing at 4% YoY each in H1 2024. Prices in Chennai and Hyderabad also grew by a healthy 5% YoY each. H1 2024 was fifth consecutive half-yearly period of price growth across all markets. Whilst affordability has improved across all markets since 2019, prices have seen a rise across the top 8 markets ranging between 5% in Ahmedabad to 26% in Hyderabad. Mumbai witnessed the sharpest improvement in affordability with affordability recovering by 15 percentage Points since 2019. Kolkata market affordability improved from 32% in 2019 to 24% in H1 2024. Affordability levels in NCR and Bengaluru improved by 6 percentage points during the same period.
Housing loan interest rate chart
Source: Knight Frank Research