Housing affordability improves across key Indian property markets in 2023

Source: The Economic Times

The affordability of housing in India's major property markets has improved, thanks to a consistent rise in income levels and upgrading macro-economic indicators. Despite higher mortgage rates in the past one year, the affordability level, the income proportion needed to cover monthly instalments for an apartment, has witnessed a positive trend.

While marginally better than last year, home affordability across cities also significantly improved since the pre-pandemic year of 2019, showed a Knight Frank India analysis. An expected moderation in inflation and projected downward trend in interest rates should further improve home affordability in 2024.

“Anticipating stable GDP growth and moderation in inflation in FY2024-25, 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,” said Shishir Baijal, CMD, Knight Frank India.

Responding to the inflationary environment, the central bank, through six successive increases since May 2022, had raised policy rates by a cumulative 250 basis points, taking the repo rate to 6.5% before hitting the pause in April. Home loan rate at 9% and an uptick in property prices has not impacted housing sales activity so far and prices have also witnessed an uptick.

“While residential prices have continued to rise in 2023, improved economic and job prospects, along with healthier income growth compared to 2022, have resulted in improving affordability for homebuyers. The upward trajectory in inquiry levels and actual sales conversions unmistakably signals this positive trend,” said Sandeep Runwal, President, NAREDCO Maharashtra.

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, 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.

Ahmedabad remains the most affordable housing market in the country with an affordability ratio of 21% which implies that on an average a household in Ahmedabad needs to spend 21% of its household income to pay EMI for housing loans. Pune and Kolkata followed with 24% each in 2023. The ratio levels of Kolkata have improved by 1% from 2022 and by 8% from the pre-pandemic year of 2019.

Hyderabad 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 seen its affordability improve to 27% in 2023 from 29% in 2022.

With an affordability level at 26%, Bengaluru is the fourth most expensive Indian property market in 2023. The ratio of the southern city has improved marginally by 1% since 2022 and 6% from the pre-pandemic year of 2019. 

Knight Frank’s analysis is based on the city-level household income data updated with the government's economic growth indicators periodically.

The residential real estate market in major Indian cities has maintained its growth momentum, reaching a six-year peak. This upswing is primarily driven by substantial sales volumes in the mid-income and premium segments, despite increased mortgage rates and property prices.