The increase in interest rates on home loans has affected the affordability of residential properties across India between January-June this year, according to Knight Frank India.
The real estate consultant released its ‘Affordability Index’ for the top eight cities for the first six months of the 2023 calendar year.
The index tracks the EMI (Equated Monthly Instalment)-to-income ratio for an average household.
It indicates the proportion of income that a household requires, to fund the EMI of a housing unit in a particular city.
The index showed that higher home loan rates have reduced affordability across all markets so far in 2023.
In terms of affordability city-wise, Ahmedabad is the most affordable housing market amongst the top eight cities, with a ratio of 23% followed by Pune and Kolkata at 26% each; Bengaluru and Chennai at 28% each; Delhi-NCR at 30%; Hyderabad 31%; and Mumbai 55%.
A Knight Frank Affordability index level of 40% for a city implies that on average, households in that city need to spend 40% of their income to fund the EMI of housing loan for that unit.
An EMI/Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage, it said.
To tackle inflation, the Reserve Bank of India (RBI) raised the Repo rate by 250 bps since May last year. As per Knight Frank’s report, the hike in repo rates by 250 basis points from May 2022 to February 2023 impacted affordability by an average of 2.5% across cities and increased the EMI load by 14.4%. However, the demand has remained unimpaired and has sustained the multi-year highs seen in H1 2023.
“The central bank has raised the REPO rate by 250 bps since then to address growing inflation. This has impacted affordability by an average of 2.5% across cities and increased the EMI load by 14.4% since then,” the consultant said.
RBI has paused rate hikes after February this year.
Knight Frank noted that the affordability index witnessed steady improvement from 2010 to 2021 across the eight cities of India, especially during the pandemic when the RBI cut repo rates to decadal lows.
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Updated: 17 Aug 2023, 01:54 PM IST