Ahmedabad emerged the most affordable housing market in the country with an affordability ratio of 20% followed by Pune and Chennai at 24% and 25% respectively, in 2021.
Mumbai was the only one that recorded higher than threshold affordability ratio at 53%, however, it has improved the most since 2011. The affordability ratio in Bengaluru improved from 57% in 2012 to 26% in 2021 while the ratio in NCR improved from 38% in 2020 to 28% in 2021
The Affordability Index captures movement in property prices, home loan interest rate and average household income to determine buyers’ ability to purchase a house in a given city. Since banks underwrite home loans when the EMI to income ratio is below 50%, existing income and average ticket-size metrics across seven of eight markets make it possible for a homebuyer to easily finance their home purchase.
“For most part of the last 5-6 years residential prices corrected leading to better affordability, however, the recent reduction in home loan interest rate to below 6.5% has been a deciding factor in the significant improvement in home affordability in the last 24 months. No doubt it has taken a pandemic for the market to turn the corner and lift homebuyer sentiment, which is now evident across the country,” said Shishir Baijal, chairman and managing director, Knight Frank India.
This is, therefore, a great time for potential buyers to purchase a home given that all factors, in terms of regulatory environment, the pricing as well as home loan rates are conducive.
Point to 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.
.