Knight Frank shares list of most affordable housing markets in the country — Check here

Incidentally, the RBI has refrained from raising rates in the past three consecutive Monetary Policy Meetings as economic fundamentals continue to show strength and the inflation forecast remains within the upper tolerance limit of 6 percent.

The Knight Frank Affordability Index indicates the proportion of income that a household requires, to fund the monthly instalment (EMI) of a housing unit in a particular city. So, a Knight Frank Affordability index level of 40 percent for a city implies that on an average, households in that city need to spend 40 percent of their income to fund the EMI of housing loan for that unit. An EMI/Income ratio over 50 percent is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage.

EMI, housing unit size and price/square feet represent city-level averages.

EMI:

Loan Tenure – 20 years

Loan to Value – 80%

Home loan interest rate - Average home loan rates

Area of housing unit: House size is fixed for each city across the years, but varies within different cities taking into account the average size preference for each city.

Housing Price: Median housing price for that city

While overall demand has remained consistently high, its underlying components have changed significantly with the mid and premium segments consistently outperforming the overall market. Conversely, sales in the under Rs 5 million ticket size category have trended down. Homebuyers in this segment have a much higher dependence on home loans and are therefore more sensitive to rate hikes compared to the mid and premium segment, Knight Frank said.

This has been a significant factor in suppressing demand in this segment. Notably, sales in the mid-segment now comfortably exceed that of the affordable segment while those in the premium segment are catching up fast, it said.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “The RBI’s extremely capable handling of the inflationary scenario has inspired confidence in the country’s economic environment. This is also reflected in the residential demand which is at a multi-year high and office demand which has remained resilient even as office markets globally have been struggling. The mid and premium segments in the residential market have been consistently outperforming and points to a significant shift in the market’s underlying fabric."

"However, the 250 bps increase in policy rates has reduced affordability across markets by 2.5 percent on an average. And, while the market has remained strong thus far, further interest rate increases could put pressure on homebuyer ability and sentiments," he said.