The availability of affordable homes in 2022 has declined marginally for the first time in 10 years, global property consultant Knight Frank India's Affordability Index 2022 showed.
The study noted that the Reserve Bank of India's increase in repo rate by 225 basis points (bps) in 2022 caused a decline in the number of affordable homes as home loan rates and house prices increased. But, "While affordability levels in 2022 have worsened compared to 2021, they remained significantly better than the pre-pandemic levels in 2019," the report said.
Knight Frank's proprietary Affordability Index, which tracks the EMI (Equated Monthly Installment) to total income ratio for an average household, saw a marginal decline in the affordability levels for the first time in 10 years in 2022.
Shishir Baijal, chairman and managing director of Knight Frank India, said despite the rise in repo rate and house prices, home affordability has only reduced by 100 to 200 bps in major cities. Baijal added that the increase in incomes and GDP growth provided a cushion against the impact of home loan rates and house prices, helping the market maintain momentum.
Baijal noted it augurs well for the industry as it had been hoping for a turnaround for a while. "We hope the sales momentum will continue in the New Year, as we expect factors like GDP growth and inflation to remain stable," Baijal said.
Barring Mumbai, all the markets recorded below the comfortable affordability ratio set at 50 per cent. Ahmedabad emerged as the country's most affordable housing market with an affordability ratio of 22 per cent, followed by Kolkata and Pune at 25 per cent each in 2022. "Mumbai was the only one with a higher than threshold affordability ratio of 53 per cent. Mumbai's affordability levels improved the most since 2011," the report said.
Improvement In Affordability Levels
The affordability levels have improved even during the pandemic years of 2020 and 2021 due to the subdued residential prices and the government's loose monetary policy aimed at increasing the liquidity in the market to help people cope with economic challenges.
Knight Frank India's Affordability Index captures the movement in key constituents, like property prices, home loan interest rates, and average household income, to determine the buyers' ability to purchase a house. Banks generally underwrite home loans when the EMI to income ratio is under 50 per cent, deemed the Index threshold for affordability.
The report added that homebuyers could easily finance their home purchase based on their existing income and the average ticket-size metrics across seven out of eight markets
