House affordability falls but still in comfort zone; Ahmedabad remains home buyers’ best bet

Rising interest rates have started to take a toll on property markets across India. All key cities are witnessing 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 Bank of India (RBI).

Among 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 calendar year 2022, showed Knight Frank India’s Affordability Index.

The index witnessed steady improvement from 2010 to 2021 across top cities, especially during the pandemic, when RBI reduced repo rate to decadal lows. However, the cumulative rise through two successive rate hikes decreased home purchase affordability on an average by 2% across markets and increased EMI load by 6.97%.

“Home affordability has worsened in the last couple of months due to the rise in home loan rates by 90 bps,” said Shishir Baijal, chairman and managing director, Knight Frank India. “On an average, affordability has decreased by 200-300 bps across major markets.”

“However, despite the hike in rates, markets remain largely affordable. With this and 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,” Baijal said.

Ahmedabad has consistently been the most affordable city since 2019. From 46% in 2010, the home purchase affordability index here improved to 20% in 2021.

Ahmedabad has consistently been the most affordable city since 2019. From 46% in 2010, the home purchase affordability index here improved to 20% in 2021.

“Faster approvals and ample floor space index (FSI) for affordable housing ensures there are no supply side constraints in the Ahmedabad property market,” said Jaxay Shah, chairman and managing director, Savvy Group.

“Developed social infrastructure — including a well-connected mass transit system and good law and order support from the administration — allows buyers to choose properties in peripheral locations too, (which also) have robust town planning schemes in place. All of these factors keep housing prices under check and maintain a good affordability level.”

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. Following the Covid-19 outbreak, 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 stands at 56%.

Hyderabad has emerged as the second most expensive residential market. From 47% in 2010, the home purchase affordability index improved to 33% in 2019. In early 2020, the affordability index further improved to 31% in 2020 and again to 29% in 2021. Currently, Hyderabad’s affordability index is 31%.

The National Capital Region (NCR) ranks third in terms of most expensive residential markets during the first half of 2022, with an affordability index of 30%.

Bengaluru follows NCR with an affordability index of 28%.