Increase In Interest Rates Impacts Affordability, Ahmedabad Performs Best, Mumbai Becomes Unaffordable In Top 8 Cities: Report

The index measures affordability by tracking the EMI (Equated Monthly Installment)-to-income ratio of an average household.

According to the ‘Affordability Index’ released by Knight Frank India, increased interest rates on home loans has reduced the affordability of residential properties during the first half of the current calendar year. The decision of the banking regulator to increase the rates has impacted the affordability of people negatively.

The index, released by real estate consultant Knight Frank India on Wednesday, tracks the top eight cities for the first six months of the calendar year. These cities include Mumbai, Ahmedabad, Delhi-NCR, Kolkata, Bengaluru, Chennai, Pune, and Hyderabad. The index measures affordability by tracking the EMI (Equated Monthly Installment)-to-income ratio of an average household. The ratio represents the proportion of income needed for a household to be able to fund the EMI of a residential unit in a city, reported PTI. 

Based on the index, a level of 40 per cent for a city implies that on average, a household in that particular city requires 40 per cent of their monthly income to be able to afford the EMI for a home loan for the unit. A ratio above 50 per cent is considered unaffordable as it crosses the threshold for banks to sanction a loan. 

The index revealed that increasing home loan rates have negatively impacted affordability across markets in 2023. While Ahmedabad came out as the most affordable housing market with a ratio of 23 per cent, Mumbai turned out to be unaffordable with a ratio of 55 per cent. Pune and Kolkata followed Ahmedabad with 26 per cent each. Bengaluru and Chennai both scored 28 per cent each on the index. Delhi-NCR and Hyderabad took the last three places along with Mumbai, with Delhi-NCR scoring 30 per cent and Hyderabad scoring 31 per cent on the index. 

The report added that because of RBI’s decision to cut repo rates, the index saw affordability improve consistently in all eight cities from 2010 to 2021, especially during the pandemic. But the decision after that to increase the repo rate to combat inflation has reduced affordability by an average of 2.5 per cent across the cities. The EMI load for the cities has also increased by 14.4 per cent on average.