Homebuyer affordability improves in 7 of 8 cities in 2024: Knight Frank India

Home affordability has remained favourable for homebuyers in 2024 as interest rates have stayed relatively steady since the end of 2023. According to Knight Frank India’s Affordability Index, Ahmedabad is the most affordable housing market among the top eight cities, with an affordability ratio of 20%, followed by Pune at 23% and Kolkata at 24%. Mumbai was the only city to exceed the affordability threshold, standing marginally higher at 50%, albeit affordability has improved.

Knight Frank India’s Affordability Index tracks the EMI (Equated Monthly Instalment) to income ratio for an average household. Home affordability witnessed steady improvement from 2010 to 2021 across the eight leading cities of India, especially during the pandemic when the Reserve Bank of India (RBI) reduced the policy repo rate (REPO) to decadal lows. However, the RBI raised the repo rate by 250 basis points (bps) over nine months starting May 2022 to tackle high inflation, thus affecting affordability across cities in 2022.

Source: Knight Frank Research. Note: For H1 2024, affordability and income levels are calculated keeping all variables constant, except for the interest rate.

Since February 2023, however the repo rate has remained unchanged, while income has seen healthy growth which has helped offset rising home prices and relatively high interest rates, supporting affordability. Housing demand has grown at an annualised rate of 23% since 2020 and is expected to scale multi-year highs in 2024. The stable interest rate scenario is likely to persist in the near term, as the India’s economy remains on a healthy growth trajectory.

Commenting on the report, Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “Affordability plays a crucial role in sustaining homebuyer demand and driving sales, which significantly contribute to the country’s economic growth. While property prices have seen a considerable rise, the steady increase in income levels has helped individuals maintain the financial confidence needed to invest in properties. As incomes grow and the economy strengthens, end-users are more inclined to make long-term financial commitments toward asset creation. With the RBI projecting a healthy 6.6% GDP growth for FY 2025 and a stable interest rate environment, affordability levels are expected to continue supporting homebuyer demand in 2025.”

The COVID-19 pandemic became a catalyst for the residential real estate market, triggering a recalibration of both property prices and lending rates that significantly boosted demand. This residential sales momentum has persisted, supported by factors such as effective inflation control, and strong economic growth and changing preference for home ownership. All markets have shown improved or stable affordability, leading to sustained demand for homes. The pandemic has thus instilled an enduring shift in homebuyers’ sentiments, keeping demand buoyant.

In Mumbai, the affordability index improved by 17 percentage points, moving from 67% in 2019 to 50% in 2024. Affordability has reduced in Bengaluru, albeit marginally, compared to last year with households now expected to pay 27% of towards home purchases up from 26% in 2023. This is largely due to the sharp rise in residential prices over the past year, which has put pressure on affordability. While affordability has come down marginally, it is still well within the affordability threshold of 50%, over which a city’s residential market is deemed unaffordable. The enduring shift in homebuyers’ preferences and sentiments since the pandemic has kept demand resilient and the residential market buoyant.