Introduction

The year 2023 brings good news for homebuyers in India, as the affordability of residential properties has improved across several cities. According to Knight Frank India's proprietary Affordability Index, the EMI (Equated Monthly Instalment) to income ratio for households has seen a positive shift. This improvement in affordability is a result of various factors such as a projected downward trend in interest rates and expected moderation in inflation. In this article, we will explore the most affordable and expensive residential markets in India, as well as the changes in affordability levels since the pre-pandemic year of 2019.

Ahmedabad: The Most Affordable Housing Market

Ahmedabad, the vibrant city in Gujarat, continues to hold the title of the most affordable housing market in India. With an affordability ratio of 21%, households in Ahmedabad need to spend only 21% of their income on EMI payments for housing loans. This ratio signifies a significant improvement in affordability compared to the previous year. Ahmedabad's affordability level has remained relatively stable since 2019, making it an attractive destination for homebuyers looking for affordable options.

Kolkata and Pune: Affordable Alternatives

Following closely behind Ahmedabad, Kolkata and Pune share the second spot on Knight Frank's affordability index with a ratio of 24% each in 2023. Both cities have witnessed a 1% improvement in affordability compared to the previous year. Kolkata, in particular, has experienced an impressive 8% increase in affordability since 2019. These cities offer a balanced mix of affordability and quality of life, making them attractive options for individuals seeking residential properties within their budget.

Mumbai: The Expensive Real Estate Market

While affordability has improved in most cities, Mumbai remains the only city that surpasses the affordability threshold of 50%. The maximum affordability threshold is a level beyond which banks are reluctant to underwrite mortgages. Despite this, Mumbai has seen a slight improvement in its affordability index, measuring at 51% in 2023 compared to 53% in 2022. Looking at the trend from the pre-pandemic period, the city has made significant progress, with a 16% improvement in affordability since 2019. Mumbai's real estate market continues to be a desirable but challenging destination for homebuyers.

Hyderabad: The Second Most Expensive Market

Following Mumbai, Hyderabad holds the position of the second most expensive residential market in India. The affordability index of the city remained unchanged at 30% for both 2023 and 2022. However, home prices in Hyderabad witnessed a substantial 11% increase in 2023, contributing to its high affordability ratio. Despite its relatively higher affordability level, Hyderabad offers a range of residential options catering to various budgets.

National Capital Region (NCR): Improved Affordability

The National Capital Region, encompassing Delhi and its surrounding areas, has seen a slight improvement in affordability. The affordability index for NCR improved from 29% in 2022 to 27% in 2023. This positive shift can be attributed to various factors such as increased supply and favorable lending policies. NCR presents a mix of affordable and luxury properties, making it an attractive destination for homebuyers with diverse budgets.

Bengaluru: A Balancing Act

Bengaluru, known as India's Silicon Valley, strikes a balance between affordability and a thriving job market. With an affordability index of 26% in 2023, Bengaluru has experienced a marginal 1% improvement since the previous year. Compared to 2019, the city has witnessed a 6% increase in affordability levels. Bengaluru's real estate market caters to a wide range of homebuyers, from budget-conscious individuals to those seeking luxury properties.

Chennai: Affordability on the Rise

The affordability index of Chennai has improved by 2%, measuring at 25% in 2023 compared to 27% in 2022. This positive shift reflects the city's efforts in making residential properties more accessible to a wider audience. Chennai offers a mix of affordable and mid-range properties, making it an attractive destination for individuals seeking value for money.

Outlook for Home Affordability in 2024

Looking ahead, the future of home affordability in India appears promising. Shishir Baijal, Chairman & Managing Director of Knight Frank India, anticipates stable GDP growth and moderation in inflation in FY 2024-25, which is expected to strengthen affordability. Additionally, if the RBI (Reserve Bank of India) decides to lower the repo rate in 2024, leading to a reduction in home loan interest rates, the affordability of homes is likely to witness a significant enhancement. These factors combined can provide a comprehensive boost to the real estate sector and further improve the accessibility of residential properties.

Conclusion

The year 2023 brings positive news for homebuyers in India, with improved affordability across several cities. Ahmedabad continues to lead as the most affordable housing market, closely followed by Kolkata and Pune. Mumbai remains the most expensive market, while Hyderabad, NCR, Bengaluru, and Chennai strike a balance between affordability and quality of life. The projected improvements in GDP growth, inflation moderation, and potential reduction in home loan interest rates indicate a promising future for home affordability in India. Whether you're a first-time homebuyer or seeking an investment opportunity, these developments offer a range of options to suit various budgets and preferences.