The city of Mumbai has upheld its status as the country’s costliest housing market, with its Equated Monthly Installment (EMI) to income ratio climbing from 52% in 2021 to 55% in the first half of 2023, as outlined in Knight Frank India’s recently published Affordability Index data on Wednesday.
In stark contrast, Ahmedabad has retained its position as the most affordable housing market, boasting a ratio of 23%.
Mumbai’s Affordability Index, now standing at 55%, has notably progressed from 93% in 2010, marking a steady improvement over the past decade. This progress was particularly evident during the pandemic when the Reserve Bank of India (RBI) significantly lowered Repo rates. However, addressing mounting inflation, the central bank raised the Repo rate by 250 basis points since January 2022, impacting affordability and subsequently increasing the EMI burden by 14.4%. Notably, the RBI has abstained from further rate hikes in three consecutive monetary policy meetings this year, maintaining interest rates for home loans.
The Affordability Index seeks to gauge the percentage of income a household requires to cover the monthly EMI for a housing unit in a specific city. The calculations are based on a home loan tenure of 20 years, an 80% loan-to-value ratio, a fixed housing unit area, and a median housing price in the given city. A Knight Frank Affordability Index score of 40% for a city indicates that, on average, households in that location must allocate 40% of their income to cover housing loan EMIs. An EMI-to-Income ratio exceeding 50% is deemed unaffordable, often leading banks to hesitate in underwriting mortgages.
| City | 2010 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Mumbai | 93% | 67% | 61% | 52% | 53% | 53% |
| Hyderabad | 47% | 34% | 38% | 28% | 29% | 30% |
| NCR | 53% | 34% | 38% | 28% | 29% | 30% |
| Bengaluru | 48% | 32% | 28% | 26% | 27% | 28% |
| Chennai | 51% | 30% | 26% | 24% | 27% | 28% |
| Pune | 39% | 29% | 26% | 24% | 25% | 26% |
| Kolkata | 45% | 32% | 30% | 25% | 25% | 26% |
| Ahmedabad | 46% | 25% | 24% | 20% | 22% | 23% |
Shishir Baijal, Chairman and MD of Knight Frank India, noted that residential demand has reached multi-year highs, and office demand has remained resilient despite global circumstances. He highlighted the consistent outperformance of the mid and premium residential segments, suggesting a notable shift in the market’s fundamental landscape. However, the 250 basis point increase in policy rates has led to a 2.5% reduction in affordability on average across markets. Although the market has displayed resilience thus far, potential further interest rate hikes could apply pressure on homebuyer capacity and sentiment.
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