- Affordability in eight cities has deteriorated for the first time in 10 years
Knight Frank India report. - Ahmedabad has emerged as the most affordable housing market in the country with a
affordability ratio of 22%. - Mumbai recorded the highest affordability ratio at 53% – the only city with affordability above the threshold.
Higher interest rates and a subsequent rise in mortgage rates, coupled with higher home prices, have made buying a home less affordable for households this year compared to 2021. However, affordability remains significantly better than 2019 pre-pandemic levels, according to
Affordability Index 2022 report.
The Affordability Index defines the affordability ratio as the portion of income a household needs to finance the monthly installment (EMI) of a housing unit in a given city.
“Despite the 225 basis point increase in repo rates in 2022 and house price increases, housing affordability in major cities has only marginally decreased by 100 to 200 basis points,” the statement said.
The Affordability Index, which tracks the EMI (Equated Monthly Term) ratio for an average household, has shown a marginal deterioration in affordability in 2022 for the first time in 10 years in eight cities: Mumbai, Hyderabad, NCR, Bengaluru, Ahmedabad , Pune, Kolkata and Chennai, said Knight Frank.
“Affordability had improved even during the pandemic-hit years of 2020 and 2021, as house price growth was subdued and the government aggressively cut policy rates to increase liquidity in the highly tense economic environment,” the report said.
Of the eight cities, Ahmedabad emerged as the most affordable housing market in the country this year with an affordability ratio of 22% – in other words, households would have to set aside 22% of their income to fund EMIs. Kolkata and Pune followed with an affordability ratio of 25% each by 2022.
On the other hand, Mumbai recorded the highest affordability ratio at 53% – the only city with affordability above the threshold. However, according to the report, affordability in Mumbai has improved the most since 2011. An EMI/Income ratio above 50% is considered unaffordable, as this is the limit above which banks rarely take out a mortgage.
“The severity of the impact of the rise in home loan interest rates and prices on the affordability index has been cushioned by rising incomes and GDP growth, allowing the housing market to maintain its dynamism. This bodes well for the industry, which has been hoping for a turnaround for some time. Going into the new year, we hope this sales momentum continues as we expect factors such as GDP growth and inflation to remain stable,” Baijal added.
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