Home affordability has continued to be advantageous for buyers in 2024, as interest rates have remained relatively stable since late 2023. As per Knight Frank India’s Affordability Index, Ahmedabad ranks as the most affordable housing market among the eight major cities, boasting an affordability ratio of 20%. Pune follows closely with a ratio of 23%, while Kolkata has an affordability ratio of 24%. Notably, Mumbai is the only city that surpasses the affordability threshold, with a ratio slightly above at 50%, although there has been an improvement in overall affordability.

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.

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.

Commenting on the report, Anurag Goel, Director, Goel Ganga Developments, said, “The Covid-19 epidemic has brought about a shift in India’s residential real estate scenario and great market developments are taking place. Affordability ratings have increased across seven out of eight cities. The two best ratios were Pune at 23% and Kolkata at 24%. Bengaluru was the only city were affordability declined slightly by 1 percentage from 26% to 27% as a result of soaring residential prices. However, all cities other than Mumbai fall below the key 50% level which augurs well for the housing space.”

Aman Gupta, Director, RPS Group, said, “This surge in demand can be validated by the Knight Frank India 2021 Affordability Index which indicated a sudden upward surge in household purchasing power for real estate after 2010 and even more so post the pandemic, EMI to income ratio seems to have improved consistently over the years factoring in NCR at 27% and Chennai at 25% for the year 2024. This situation has come about due to the fixed repo rates and rising salaries that have negated both house price inflation and elevated interest rates. This, thus, converts the current market into a robust ecosystem for home buyers well into the year 2025.”

“The steady repo rate since February 2023, coupled with healthy income growth, has created a favorable market for homebuyers across India. Ahmedabad leads with 20% affordability ratio, while Mumbai shows remarkable improvement from 67% in 2019 to 50% in 2024. This transformation reflects the market’s resilience and adaptation post-pandemic, with housing demand growing at an impressive 23% annualized rate since 2020. The stable interest rate environment, combined with India’s projected 6.6% GDP growth for FY 2025, suggests sustained positive momentum in the residential real estate sector,” said Mohit Sharma, Founder, Gainers Realtors LLP.