The rising interest rates have started to take a toll on property markets across India as all key cities have started to witness a decline in affordability due to the recent rise in home loan rates following the 90-basis-point hike in Repo rate by the Reserve .
Amongst the top eight cities, Ahmedabad has emerged as the most affordable housing market, based on Equated Monthly Instalment (EMI) to income ratio for an average household. The ratio for Ahmedabad stood at 22% followed by Pune and Chennai at 26% each in the first half of the calendar year 2022, showed Knight Frank India’s Affordability Index.
The index witnessed steady improvement from 2010 to 2021 across the eight leading cities of India especially during the pandemic when the RBI reduced Repo rates to decadal lows. However, the 90-bps cumulative rise through two successive rate hikes has decreased home purchase affordability on an average by 2% across markets and increased EMI load by 6.97%.
“The home affordability, due to the rise in home loan rates by 90 bps, has worsened in the last couple of months. On an average affordability has decreased by 200-300 bps across the major markets. However, despite the hike in the rates, markets remain largely affordable. This, coupled with the positive change in sentiments towards home ownership, we expect demand to remain unhindered with the momentum backed by the latent demand in the market continuing,” said Shishir Baijal, CMD, Knight Frank India.
Further, according to him, factors like strong economic growth outlook, financial stability and job security, the purchasing capabilities of potential buyers are expected to remain intact.
Ahmedabad has consistently been the most affordable city in India since 2019. From 46% in 2010, the home purchase affordability index improved to 25% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 24% in 2020 and again to 20% in 2021.
Mumbai remains the most expensive residential market in the country. From 93% in 2010, the home purchase affordability index had improved to 66% in 2019. With the advent of the pandemic in early 2020, the affordability index had further improved to 61% in 2020 and again to 53% in 2021. In the first half of 2022, the affordability index of the city currently stands at 56%.
Hyderabad has emerged as the second most expensive residential market in the country. From 47% in 2010, the home purchase affordability index improved to 33% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 31% in 2020 and again to 29% in 2021. In the first half of 2022, the affordability index of the city currently stands at 31%.
National Capital Region (NCR) ranks third in terms of most expensive residential market in the country during the first half of 2022 with an affordability index of 30%. Bangalore follows NCR in terms of expensive residential markets in the country, ranking as the fourth expensive city in India. In the first half of 2022, the affordability index of the city stood at 28%.