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According to Knight Frank India’s proprietary Affordability Index, the EMI (Equated Monthly Instalment) to income ratio for households has improved in 2023 after the brief decline in affordability in 2022. While marginally better than last year, home affordability across cities also significantly improved since pre-pandemic year of 2019. Expected moderation in inflation and projected downward trend in interest rates should further improve home affordability in 2024.

Ahmedabad remains the most affordable housing market in the country with an affordability ratio of 21% which implies that on an average a household in Ahmedabad needs to spend 21% of its household income to pay EMI for housing loans. Ahmedabad was followed by Kolkata and Pune at 24% each in 2023.

Kolkata comes second on Knight Frank’s affordability index with a ratio of 24% in 2023. The ratio level of the city has improved by 1% from 2022 and by 8% from the pre-pandemic year of 2019.

Mumbai is the only city beyond the affordability threshold of 50%, a level exceeding which banks rarely underwrite a mortgage. The most expensive residential market of the country, Mumbai, has however seen an improvement of 2% in its affordability index measured at 51% in 2023 from 53% in 2022.  Looking at the trend from the pre-pandemic period, the city has witnessed a significant improvement of 16% in its affordability levels from 67% in the 2019.

Hyderabad is the second most expensive residential market in the country. The affordability index of the city remained unchanged at 30% for both the years of 2023 and 2022 as home prices increased by a prolific 11% in 2023.

National Capital Region (NCR) has seen its affordability index improve to 27% in 2023 from 29% in 2022.

Bengaluru is the fourth most expensive market with affordability index of 26% in 2023. The ratio of city has improved marginally by 1% since 2022 and 6% from the pre pandemic year of 2019.

Affordability Index of Chennai has improved by 2% from 27% in 2022 to 25% in 2023.

Affordability Matrix

Shishir Baijal, Chairman & Managing Director, Knight Frank India, said, “Anticipating stable GDP growth and moderation in inflation in FY 2024-25, affordability is expected to strengthen. Further, if the RBI decides to lower the repo rate later in 2024 as is widely expected leading to a reduction in home loan interest rates, the affordability of homes in 2024 could see a noteworthy enhancement, providing a comprehensive boost to the sector.”

METHODOLOGY

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. Thus, the 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 a housing loan for a unit. An EMI/ Income ratio of 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.
• Loan Tenure – 20 years
• Loan to Value – 80%
• Home Loan Interest Rate – Median MCLR of all scheduled commercial banks with 40 bps spread
• Area of Housing Unit: House sizes are fixed for each city across the years but vary within different cities taking into account the average size preference for each city.
• Housing Price: Median housing price for that city.

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