Homebuyer affordability declines in 2022 but still better than pre-pandemic 2019 level, says Knight Frank India

• Affordability levels across eight cities have worsened for the first time in 10 years, as per Knight Frank India report.
  
• Ahmedabad has emerged as the most affordable housing market in the country with an affordability ratio of 22%.
  
• Mumbai recorded the highest affordability ratio at 53% – the only city with above-threshold affordability.

Higher interest rates and a subsequent rise in home loan rates, coupled with higher residential property prices have made buying a house less affordable for households this year compared to 2021. However affordability remains significantly better than the pre-pandemic levels of 2019, according to Knight Frank India’s Affordability Index 2022 report.

The affordability index defines affordability ratio as the proportion of income that a household requires to fund the monthly installment (EMI) of a housing unit in a particular city.

“Despite the rise in repo rate by 225 basis points in 2022 and the increase in home prices, home affordability has only marginally reduced by 100 to 200 basis points in major cities,” said Shishir Baijal, chairman and managing director, Knight Frank India.

The Affordability Index, which tracks the EMI (equated monthly installment) to total income ratio for an average household, has shown a marginal worsening in affordability levels for the first time in 10 years in 2022 across eight cities – Mumbai, Hyderabad, NCR, Bengaluru, Ahmedabad, Pune, Kolkata and Chennai, Knight Frank said.

“Affordability levels had improved even during the pandemic impacted years of 2020 and 2021 as residential price growth was subdued and the government aggressively cut policy rates to increase liquidity in the highly stressed economic environment,” the report said.

Among the eight cities, Ahmedabad emerged as the most affordable housing market in the country this year with an affordability ratio of 22% – in other words, households would need to set aside 22% of their income to fund EMIs. Kolkata and Pune followed with an affordability ratio of 25% each in 2022.

On the other hand, Mumbai recorded the highest affordability ratio at 53% – the only city with above-threshold affordability. However, the affordability level in Mumbai has improved the most since 2011, according to the report. An EMI/ Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage.

“The severity of the impact of rise in home loan rates and in prices on the affordability index has been cushioned by a rise in incomes and growth in GDP, helping the residential market maintain its momentum. This augurs well for the industry as it had been hoping for a turn around for a while. For the new year, we hope this sales momentum will continue as we expect factors like GDP growth and inflation to remain stable,” Baijal added.

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