In the wake of RBI repo rate cuts in the last around 6 months, the affordability of homes for buyers has improved across eight major cities in the country in the first half of this year, according to a report.

According to Knight Frank India’s latest Affordability Index for H1 2025, housing affordability has improved across most major cities, with Ahmedabad, Pune, and Kolkata emerging as the most affordable markets.

This improvement follows the Reserve Bank of India’s 100-basis-point repo rate cut since February 2025, which has reduced EMIs and eased the financial burden on homebuyers.

Ahmedabad most affordable housing market in H1 2025

Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18%, followed by Pune at 22% and Kolkata at 23%. Mumbai was the least affordable city, with an affordability level of 48%. However, it is noteworthy that the market has breached the 50% mark for the first time in the history of the index.

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Knight Frank India’s Affordability Index, which tracks the EMI (Equated Monthly Instalment) to income ratio for an average household, 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) cut policy repo rate (REPO) to decadal lows.

What led to the rise in affordability in the real estate space

The central bank subsequently raised the REPO rate by 250 bps in a space of nine months starting May 2022 to address high inflation which caused stress on affordability levels. However, with inflation worries subsiding and economic growth regaining focus, the RBI slashed the REPO rate by 100 bps since February 2025. This has improved affordability across 7 of the 8 cities in H1 2025.

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “Affordability plays a critical role in maintaining homebuyer demand and sustaining sales momentum, both of which are vital contributors to the broader economy. As incomes grow and the economy gains strength, financial confidence among end-users improves, motivating them to commit to long-term investments such as home ownership. Given the RBI’s healthy 6.5% GDP growth estimate for FY 2026 and a favourable interest rate scenario, affordability levels are expected to be supportive of homebuyer demand in 2025.”

While the Indian economy is not insulated from the volatile geopolitical and economic environment, it continues to enjoy a relatively favourable economic growth and inflation environment. This has supported income growth and enabled lower interest rates which have in turn helped improve affordability despite the increase in residential prices.

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Affordability levels are now at their best since the pandemic

Incidentally, affordability levels are now at their best since the pandemic and are significantly better than the levels seen at the end of 2024, just before the first rate cut announced in February 2025, according to the report.

Note:The Knight Frank Affordability Index indicates the proportion of income that a household requires, to fund the monthly instalment (EMI) of a housing unit in a particular city. So, a Knight Frank Affordability index level of 40% for a city implies that on an average, households in that city need to spend 40% of their income to fund the EMI of housing loan for that unit. An EMI/ Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage.

“In Mumbai, the affordability index level improved by over 2 percentage points, moving from 50% in 2024 to 48% in H1 2025. This is the first time in the history of the index that Mumbai has come below the threshold of 50% mark which is considered outer point of affordability. Mumbai’s market, which has always been above the threshold, has now become more affordable due to the reduced home loan rates,” the report said.

Affordability levels have marginally worsened in NCR during the same period with households now needing to pay 28% of their income for acquiring an average property in the city instead of 27% in 2023. This can be attributed to the steep increase in residential prices, which have eclipsed the impact of the interest rate cuts in the NCR.

“The RBIs neutral stance and intent to keep interest rates stable is expected to sustain affordability levels in the near term. The interest rate cut and CRR reduction in H1 2025 have significantly enhanced liquidity in India’s financial system by unlocking substantial funds for lending and reducing the cost of borrowing. This infusion of liquidity should spur credit expansion and benefit both developers and urban homebuyers, thereby providing a boost to the broader real estate market,” the report said.