Costlier Loans, Properties Hit Home Affordability Marginally In 2022: Knight Frank
Knight Frank India said affordability levels for buying homes across eight major cities slightly declined this year.
Property consultant Knight Frank India on Thursday said affordability levels for buying homes across eight major cities slightly declined this year due to a rise in mortgage rates, but the total income for an average household is adequate for securing home loans in all markets except Mumbai.
In its annual proprietary study Affordability Index 2022, Knight Frank India pointed out that home buying affordability levels in Indian markets have declined in 2022 compared to 2021, according to a statement.
The index, which tracks the EMI to total income ratio for an average household, captures movement in key constituents like property prices, home loan interest rate and average household income to determine the buyers' ability to purchase a house.
Banks generally underwrite home loans when the EMI to Income ratio is under 50%, and this is deemed to be the threshold for affordability by the index.
The consultant said that the cumulative increase in repo rate by 225 basis points during 2022 and the consequent increase in home-loan rates, along with an increase in residential prices caused the decline in affordability.
While affordability levels in 2022 have worsened compared to 2021, they remain significantly better the pre-pandemic levels in 2019.
"All markets, except Mumbai, are recorded to be well below the threshold of comfortable affordability set at 50% ratio. Ahmedabad emerged the most affordable housing market in the country with an affordability ratio of 22%, followed by Kolkata and Pune at 25% each in 2022.
"Mumbai was the only one that recorded higher than threshold affordability ratio at 53%," the statement said.
Affordability levels in Mumbai has improved the most since 2011.
"Despite the rise in repo rate by 225 bps (basis points) in 2022 and the increase in home prices, home affordability has only marginally reduced by 100 to 200 bps in major cities," Shishir Baijal, chairman and managing director of Knight Frank India, said.
The severity of the impact of rise in home loan rates and in prices on the affordability index has been cushioned by a rise in incomes and growth in GDP, helping the residential market maintain its momentum, he said.
