In a recent revelation, the Knight Frank Affordability Index has underscored the varying cost of living across Indian cities, with Mumbai emerging as the country’s most expensive housing market.
This index, developed by Knight Frank India, a prominent property consultant, examines the extent of income required by households to cover monthly housing unit installments, otherwise known as EMIs.
Mumbai’s unyielding reputation for soaring real estate prices was affirmed as the city topped the list of India’s most expensive places to reside. According to the Knight Frank Affordability Index, Mumbai residents face a staggering 55% ratio of home loan EMI to income. This implies that an average household must allocate over half of its earnings towards servicing home loan EMIs, making it an uphill task for potential homeowners to enter the market.
Following closely behind Mumbai is Hyderabad, securing the second position on the list of priciest cities. Here, the EMI-to-income ratio stands at 31%, demonstrating the significant financial commitment that homeowners must undertake to secure a place in the city.
The National Capital Region of Delhi ranks third in the affordability index, necessitating a 30% income allocation for home loan EMIs. Meanwhile, Bengaluru in Karnataka and Chennai in Tamil Nadu share the next slot, both demanding a 28% EMI-to-income ratio.
Diving into the data further, Pune in Maharashtra and Kolkata in West Bengal both require households to set aside 26% of their income for home loan EMIs. In stark contrast, the state of Gujarat’s Ahmedabad emerges as the most affordable city, where residents need only allocate 23% of their earnings to cover home loan EMIs.
This Knight Frank study factors in a 20-year loan term, an 80% loan-to-value ratio, and a standardised housing size across cities. However, the report also sheds light on the impact of recent changes. Over the past year, an increase in the Reserve Bank of India’s key lending rate by 250 basis points has pushed up EMI-to-income ratios across cities by an average of 1-2 percentage points, causing living in these areas to become more expensive.
The report further highlights a dichotomy in the housing market. While demand for mid and premium segments remains robust, houses valued at less than ₹50 lakh have faced a downturn in sales. The report attributes this decline to homebuyers in this segment being particularly sensitive to interest rate hikes due to their higher reliance on home loans.
In contrast, the mid and premium segments have displayed resilience, with sales of houses ranging from ₹50 lakh to 1 crore experiencing an uptick to approximately 59,000 units this year. The luxury segment, featuring houses priced over ₹1 crore, has also surged to 47,000 units in the same period. This shift in market dynamics underscores changing consumer preferences.
Despite the market’s buoyancy, the 250 basis point increase in policy rates has led to a 2.5% reduction in overall affordability across various markets. While the housing sector has remained resilient thus far, further interest rate hikes could potentially exert pressure on homebuyer capabilities and sentiments, impacting the market’s trajectory.
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