Home buying affordability dips by 2%; Mumbai the most expensive

The four consecutive repo rate hikes by the Reserve Bank India (RBI) is said to have decreased home purchase affordability on an average by 2% across various cities of India and increased the Equated Monthly Instalment (EMI) load by 7.4%.

In the four rate hikes, the home loan interest rate has increased by a total 1.90%. Various banks and housing finance institutions are offering home loans with an interest rate in the range of 8% to 9%.

Knight Frank's report Affordability Index, which tracks the EMI 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 RBI cut the repo rates to decadal lows. However, the trend started reversing with rate hikes.

After the report’s release, on the affordability topic, Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “The home affordability, due to the rise in median loan rates has worsened in 2022. On 30th September 2022, the RBI increased the repo rate by 50 basis points taking the cumulative hike to 190 basis points in the year 2022. Affordability has worsened by 2% points across cities since the rate cycle changed. The 0.95% cumulative increase in median home loan rate will impact affordability of homebuyers and thus their purchase decisions as well. However, with the need for homeownership still being strong, homebuyers will largely make necessary compromises by considering lower priced housing units rather than deferring their purchases as expectations of further price increases will discourage deferment.”

An assessment was conducted for the Affordability Index for the initial nine months of calendar year 2022. It emerged that Ahmedabad continued to remain the most affordable housing market amongst the top eight cities, with a ratio of 22% followed by Pune at 26% and Chennai at 27%.

Mumbai continued to remain the most expensive residential market in India followed by Hyderabad that emerged as the second most expensive real estate destination. Whereas, the National Capital Region stood at third place among the top eight Indian cities.

In the order of being most expensive, after NCR, Bengaluru, Kolkata, Chennai, Pune and Ahmedabad were the cities.