Home Sweet Home - Affordable Housing Market in India Surges in Despite Challenges

Rising Affordability in India's Real Estate

In a heartening development for homebuyers, the housing affordability across major Indian cities has shown notable improvement. Despite the challenges of higher mortgage rates over the past year, the proportion of income required to cover monthly home loan installments has decreased.

This positive trend in affordability is not only better than the previous year but also shows a significant improvement compared to the pre-pandemic year of 2019, as revealed by Knight Frank India's analysis.

Anticipating a Brighter 2024 for Homebuyers

Shishir Baijal, CMD of Knight Frank India, expressed optimism about the future of home affordability. With stable GDP growth and expected moderation in inflation in FY2024-25, along with the possibility of the RBI lowering the repo rate, leading to reduced home loan interest rates, there's an anticipation of further improvement in home affordability in 2024, providing a substantial boost to the sector.

Central Bank's Role and the Current Market Scenario

Following the inflationary trends, the central bank has increased policy rates by a cumulative 250 basis points since May 2022, bringing the repo rate to 6.5% by April. Despite a home loan rate at 9% and a rise in property prices, the housing sales activity remains robust, indicating a healthy market.

Residential Market Trends and Consumer Confidence

Sandeep Runwal, President of NAREDCO Maharashtra, noted that improved economic and job prospects, coupled with higher income growth compared to 2022, have enhanced housing affordability. The increase in inquiry levels and sales conversions signals a positive market trend. Mumbai, while still beyond the affordability threshold of 50%, has shown a 2% improvement in its affordability index in 2023. Ahmedabad, Kolkata, and Pune rank as the most affordable residential markets.

City-wise Affordability Analysis

Mumbai: Improvement of 2% in 2023; significant 16% improvement since 2019.

Ahmedabad: Most affordable with a 21% affordability ratio.

Kolkata and Pune: Both cities at 24% affordability ratio in 2023.

Hyderabad: Second most expensive, with a steady affordability index of 30%.

NCR: Affordability improved to 27% in 2023.

Bengaluru: Fourth most expensive market with a 26% affordability level.

Knight Frank's Comprehensive Analysis

Knight Frank's study, based on city-level household income data and updated with the government's economic growth indicators, shows that the residential real estate market in major Indian cities has reached a six-year peak. This growth is driven by strong sales in the mid-income and premium segments, underscoring the resilience of the Indian housing market.