Following the two recent consecutive lending rate hikes of total 90 bps by the RBI, the mid-year assesment of home affordability done by the Knight Frank , has revealed a marginal decline in its Home Affordability Index across all major residential markets.
As per Knight Frank Affordability Index for H1 2022 , home purchase affordability across markets has declined on an average by 2% while the EMI load has increased by 6.97%. Ahmedabad is the most affordable housing market amongst the top eight cities], with a ratio of 22% followed by Pune and Chennai at 26% each in the first half of the calendar year 2022.
Affordability Index of leading eight cities of India
| City | EMI to Income Ratio | ||||
| 2010 | 2019 | 2020 | 2021 | H1 2022 | |
| Mumbai | 93% | 66% | 61% | 53% | 56% |
| NCR | 53% | 34% | 38% | 28% | 30% |
| Bengaluru | 48% | 32% | 28% | 26% | 28% |
| Pune | 39% | 28% | 26% | 24% | 26% |
| Chennai | 51% | 29% | 26% | 25% | 26% |
| Hyderabad | 47% | 33% | 31% | 29% | 31% |
| Kolkata | 45% | 31% | 30% | 25% | 27% |
| Ahmedabad | 46% | 25% | 24% | 20% | 22% |
Source: Knight Frank Research
Note: For H1 2022, affordability and income levels are calculated keeping all variables constant, except for the interest rate.
Shishir Baijal, Chairman and Managing Director, of Knight Frank India, said,
“The home affordability, due to the rise in home loan rates by 90 BPS, has worsened in the last couple of months. On an average affordability has decreased by 200 – 300 basis points across the major markets. However, despite the hike in the rates, markets remain largely affordable. This, coupled with the positive change in sentiments towards home ownership, we expect demand to remain unhindered with the momentum backed by the latent demand in the market continuing. Further, factors like strong economic growth outlook, financial stability and job security, the purchasing capabilities of potential buyers are expected to remain intact.”
Mumbai
The city remains the most expensive residential market in the country. From 93% in 2010, the home purchase affordability index improved to 66% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 61% in 2020 and again to 53% in 2021. In H1 2022, the affordability index of the city currently stands at 56%.
Hyderabad
Hyderabad is the second most expensive residential market in the country. From 47% in 2010, the home purchase affordability index improved to 33% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 31% in 2020 and again to 29% in 2021. In H1 2022, the affordability index of the city currently stands at 31%.
NCR
NCR ranks third in terms of most expensive residential market in the country during H1 2022. The city’s affordability index has been fluctuating year on year. From 53% in 2010, the home purchase affordability index improved to 34% in 2019. With the advent of the pandemic in early 2020, the affordability index rolled back to 38% in 2020 but improved to 28% in 2021. In H1 2022, the affordability index of the city currently stands at 30%.
Bengaluru
Bengaluru follows NCR in terms of expensive residential markets in the country, ranking 4th expensive city in India. From 48% in 2010, the home purchase affordability index improved to 32% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 28% in 2020 and again to 26% in 2021. In H1 2022, the affordability index of the city currently stands at 28%.
Kolkata
Kolkata ranks as the third most affordable residential market in the country. From 45% in 2010, the home purchase affordability index improved to 31% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 30% in 2020 and again to 25% in 2021. In H1 2022, the affordability index of the city currently stands at 27%.
According to the affordability index, Pune and Chennai are the second most affordable residential markets in the country.
Pune
From 39% in 2010, the home purchase affordability index improved to 28% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 26% in 2020 and again to 24% in 2021. In H1 2022, the affordability index of the city currently stands at 26%.
Chennai
From 51% in 2010, the home purchase affordability index improved to 29% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 26% in 2020 and again to 25% in 2021. In H1 2022, the affordability index of the city currently stands at 26%.
Ahmedabad
Ahmedabad has consistently been the most affordable city in India since 2019. From 46% in 2010, the home purchase affordability index improved to 25% in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 24% in 2020 and again to 20% in 2021. In H1 2022, the affordability index of the city currently stands at 22%.
Future Outlook
Despite 200-300 bps decrease in affordability across major cities, markets have largely remained affordable. Shishir Baijal, Chairman & Managing Director, Knight Frank India believes that with the positive change in sentiments towards home ownership, the residential demand is expected to remain unhindered with the momentum backed by the continuing latent demand in the market. Further, with favorable factors like a strong economic growth outlook, financial stability and job security, the purchasing capability of potential home buyers is expected to remain intact.
Catch 22 Situation!
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