Homebuyer Affordability Improves In Seven Out Of Eight Cities In 2024, Says Knight Frank India

Homebuyer affordability across major cities in India improved in 2024, due to steady income growth and relatively stable interest rates, according to Knight Frank India's latest Affordability Index. The affordability ratio, which tracks the proportion of a household's income used for the Equated Monthly Instalment (EMI) on home loans, shows positive trends in most markets despite property price hikes.

Ahmedabad emerged as the most affordable housing market among the top eight cities in India, with an affordability ratio of 20%, followed closely by Pune at 23% and Kolkata at 24%. These cities continued to offer a favourable environment for homebuyers. However, Mumbai, while still affordable, saw its affordability ratio rise to 50%, exceeding the commonly accepted affordability threshold of 40% but showing improvement compared to previous years.

The Knight Frank Affordability Index is based on the EMI-to-income ratio for an average household, and it reflects broader trends in the housing market. From 2010 to 2021, affordability steadily improved across India's top cities, driven by lower interest rates and government policies, especially during the pandemic when the Reserve Bank of India (RBI) slashed the repo rate to historic lows.

However, following the RBI's decision to raise the repo rate by 250 basis points (bps) between May 2022 and early 2023 to curb inflation, homebuyer affordability took a hit. Fortunately, with the repo rate remaining stable since February 2023 and incomes rising at a healthy pace, homebuyer affordability has started to stabilise, even as property prices have continued to increase.

Knight Frank reports that housing demand has grown at an annualised rate of 23% since 2020, with expectations for the demand to reach multi-year highs in 2024. The stable interest rate environment, combined with an ongoing economic recovery, is expected to support homebuyer affordability in the near term.

In Mumbai, the affordability index has improved by 17 percentage points since 2019, moving from 67% to 50% in 2024. This improvement reflects a combination of factors, including steady income growth and a relatively more balanced market despite higher home prices. However, Bengaluru, one of the other top cities, saw a slight dip in affordability, as the city's affordability ratio increased from 26% in 2023 to 27% in 2024. This modest decrease is attributed to the significant rise in residential property prices in Bengaluru, putting some pressure on homebuyers.

Despite this, Bengaluru's affordability remains within the healthy threshold of 50%, meaning the market is still considered affordable for most buyers. Additionally, the enduring shift in homebuyers' preferences, especially post-pandemic, has contributed to continued demand and kept the residential market buoyant in most cities.