Kolkata / New Delhi, Dec 27 (FN Bureau) Affordability Index, cited that home affordability has remained favourable for homebuyers in 2024 as interest rates have stayed relatively steady since the end of 2023, according to data released by Knight Frank India on Friday. In its proprietary report, Ahmedabad is the most affordable housing market among the top eight cities, with an affordability ratio of 20 percent, followed by Pune at 23 pc and Kolkata at 24 pc. Mumbai was the only city to exceed the affordability threshold, standing marginally higher at 50 pc, albeit affordability has improved. 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 at an annualised rate of 23 pc since 2020 and is expected to scale multi-year highs in 2024. The stable interest rate scenario is likely to persist in the near term, as India’s economy remains on a healthy growth trajectory. For H1 2024, affordability and income levels are calculated keeping all variables constant, except for the interest rate. 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 pc for a city implies that on average, households in that city need to spend 40 pc of their income to fund the EMI of the housing loan for that unit.
An EMI/ Income ratio over 50 pc is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage. Shishir Baijal, Chairman and Managing Director, Knight Frank India said “Affordability plays a crucial role in sustaining homebuyer demand and driving sales, which significantly contribute to the country’s economic growth. While property prices have seen a considerable rise, the steady increase in income levels has helped individuals maintain the financial confidence needed to invest in properties. As incomes grow and the economy strengthens, end-users are more inclined to make long-term financial commitments toward asset creation. With the RBI projecting a healthy 6.6 percent GDP growth for FY 2025 and a stable interest rate environment, affordability levels are expected to continue supporting homebuyer demand in 2025.”