Hyderabad is the second most expensive market with a ratio of 31%, Knight Frank India in its proprietary Affordability Index has cited. In the first half of this year, the city has witnessed 1% increase in the ratio from 30% in 2022.
Mumbai occupied the first position with a ratio of 55%, up from 53% last year. National Capital Region of Delhi has a ratio of 30%, up from 29% followed by Bengaluru with 28%, up from 27%, according to its latest report released on Wednesday.
Higher home loan rates have reduced affordability across all markets so far in 2023. Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 23% followed by Pune and Kolkata at 26% each.
The Affordability Index tracking the EMI (Equated Monthly Instalment) to income ratio for an average household, has witnessed steady improvement from 2010 to 2021 across the eight leading cities, especially during the pandemic when the Reserve Bank of India (RBI) had cut rates to decadal lows.
The central bank has raised the REPO rate by 250 bps since then to address growing inflation. This has impacted affordability by an average of 2.5% across cities and increased the EMI load by 14.4%. However, demand has remained unimpaired and has sustained at the multi-year highs seen so far this year.
While overall demand has remained consistently high, its underlying components have changed significantly with the mid and premium segments (₹50 lakh-₹1 crore and above, respectively) consistently outperforming the overall market.
Conversely, sales in the under ₹50 lakh ticket size category have trended down. Homebuyers in this segment have a much higher dependence on home loans and are, therefore, more sensitive to rate hikes compared to the mid and premium segments. This has been a significant factor in suppressing demand in this segment. Notably, sales in the mid-segment now comfortably exceed that of the affordable segment while those in the premium segment are catching up fast.
“The mid and premium segments in the residential market have been consistently outperforming and points to a significant shift in the market’s underlying fabric. However, the 250 bps increase in policy rates has reduced affordability across markets by 2.5% on an average. Further interest rate increases could put pressure on homebuyer ability and sentiments,” said Knight & Frank CMD Shishir Baijal, in a press release.
