Pune and Kolkata followed with 24% each in 2023. The ratio level of Kolkata has improved by 1% from 2022 and by 8% from the pre-pandemic year of 2019. The affordability ratio of Chennai has improved by 2% from 27% in 2022 to 25% in 2023. It secured fourth place in the Affordability Index.
Despite higher home loan interest rates in the last year, the affordability ratio showed a positive trend in 2023. While marginally better than last year, home affordability across cities also significantly improved since the pre-pandemic year of 2019, showed Knight Frank India data.
The Affordability Index indicates the proportion of income that a household requires to fund the EMI of a housing unit in a particular city. Thus, an affordability index level of 40% for a city implies that on average, households in that city need to spend 40% of their income to fund the EMI of a home loan for a unit. An affordability index level of over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage. The affordability index can rise either due to reduction in prices or due to rise in average income of the city or sometimes both.
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 2019,” the report said.
| City | 2010 | 2019 | 2021 | 2022 | 2023 |
| Mumbai | 93% | 67% | 52% | 53% | 51% |
| Hyderabad | 47% | 34% | 28% | 30% | 30% |
| NCR | 53% | 34% | 28% | 29% | 27% |
| Bengaluru | 48% | 32% | 26% | 27% | 26% |
| Chennai | 51% | 30% | 24% | 27% | 25% |
| Pune | 39% | 29% | 24% | 25% | 24% |
| Kolkata | 45% | 32% | 25% | 25% | 24% |
| Ahmedabad | 46% | 25% | 20% | 22% | 21% |
Note: (1) Calculated as EMI/INCOME ratio
(2) City-wide average affordability statistics cannot highlight disparities in housing costs within sub-markets or across the income spectrum. Source: MOSPI, Knight Frank ResearchHyderabad is the second most expensive residential market in the country with the affordability index of the city unchanged at 30% for both the years of 2023 and 2022 as home prices increased by 11% in 2023. The National Capital Region (NCR) has also witnessed its affordability improve to 27% in 2023 from 29% in 2022. Bengaluru is the fourth most expensive market with an affordability index of 26% in 2023. “The ratio of the city has improved marginally by 1% since 2022 and 6% from the pre-pandemic year of 2019,” the Knight Frank data showed.Will the affordability level improve further in 2024?
Expected moderation in inflation and projected downward trend in interest rates should further improve home affordability in 2024, believed Knight Frank. 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 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.
